Integrated Report 2019 For the year ended December 31, 2019 On the Publication of the Integrated Report 2019
Since fiscal 2017, Nippon Electric Glass (NEG) has published an annual Integrated Report, which serves as a tool for continuously expanding the scope and level of disclosure while also allowing us to communicate with our stakeholders. In our Integrated Report 2019, we disclose NEG’s financial situation, corporate activities, and strategies for growth, especially the EGP2021 medium-term business plan. With regard to ESG (environmental, social, and governance), we will also introduce the more robust initiatives that we are pursuing, particularly those in the CSR priority areas of the environment and diversity and inclusion. This easy-to-read, narrative report tells of our initiatives to enhance our corporate value along the way to becoming the world’s leading manufacturer of special glass. We sincerely hope it gives you a better understanding of our group.
Motoharu Matsumoto, President
Contents
Value Creation ESG
Message from the Chairman ・・・・・・2 Corporate Governance ・・・・・・26
History of Nippon Electric Glass・・・・・・4 A Conversation with the Outside Directors ・・・・・・29
Value Creating Process・・・・・・6 Directors, Corporate Auditors, Executive Officers ・・・・・・32
Manufacturing of Nippon Electric Glass ・・・・・・8 Compliance and Risk Management ・・・・・・34
Relationship with Society throughout the Value Chain ・・・・・ 10 CSR Foundation・・・・・・38
Research and Development ・・・・・・12 Environment ・・・・・・40
Products and Technology ・・・・・・14 Diversity and Inclusion ・・・・・・46
Management Strategy Community Contribution・・・・・・50
Message from the President ・・・・・・16 Other Initiatives ・・・・・・52
Financial and Non-financial Highlights ・・・・・・20 Financial & Corporate Information
Overview of Business・・・・・・22 Financial Review ・・・・・・54
Consolidated Financial Summary ・・・・・・56
Consolidated Financial Statements ・・・・・・58
Corporate Information ・・・・・・81 At Nippon Electric Glass, our corporate philosophy is a reflection of our founding mission, a statement of our devotion to creating products infused with the very best of human civilization for the betterment of society.
Our corporate philosophy We strive to build a brighter future for the world by uncovering the unlimited possibilities of glass for more advanced creative manufacturing. Firmly rooted in the traditions of our founding mission, the NEG corporate philosophy plots a path for our quest for sustainable growth. Thanks to material design, melting, forming, and processing technologies, glass can be infused with different properties for a broad range of functions. We are dedicated to unlocking glass’s potential to make life better and more comfortable for people and communities the world over.
Our slogan
Our vision The world’s leading manufacturer of special glass Our goal is to become the world’s leading manufacturer of special glass, with the best talent, the best technology, and the best creative manufacturing ability. At the same time, we strive to run our company in a way that inspires pride among our workers and enables us to make a genuine contribution to the community. The way we see it, creative manufacturing is achieved through state-of-the-art technological development, the highest quality standards, efficient production, and a steady supply of products, all underpinned by a fundamental dedication to environmental sustainability.
Our values
Customer first Everything is based on accurate understanding and complete satisfaction of customers’ requirements.
Get the job done We are dedicated to completing every task properly.
Broad minds and open We think beyond existing norms and encourage frank communication among all departments communication and generations.
High ethical standards We are bound to act ethically and in good faith in all situations.
Consideration We are constantly aware of the need to be considerate of the environment, and strive to reduce our footprint. for the environment
Editorial Policy
● Organizations Covered ● Disclosure Policy The Nippon Electric Glass Group’s 11 domestic companies and 15 overseas The Group Code of Conduct stipulates that our group will disclose necessary companies are covered in this report. In cases where the coverage area of the corporate information in a timely and appropriate manner to enhance data differs, we have indicated the appropriate coverage areas respectively. communication with concerned parties. Following this policy, we will continue to disclose important information related to our group’s activities to all ● Period of Reporting stakeholders, including shareholders and investors, in a timely and appropriate Fiscal 2019 (January 2019 to December 2019). Some qualitative information manner. regarding fiscal 2020 has also been included in this report. ● Caution Concerning Forward-Looking Statements ● Publication, Next Scheduled Publication Statements in this Integrated Report with respect to our group’s plans, outlooks, Issued in May 2020. Next scheduled issue in May 2021. strategies, and other statements that are not historical facts, are forward-looking ● Editorial Guidelines statements involving risks and uncertainties. IIRC International Integrated Reporting Framework, GRI Standards, and others. The GRI Content Index can be found at https://www.neg.co.jp/en/ir/archive/annual/
Integrated Report 2019 1 Message from the Chairman
Celebrating our 70th anniversary
Staying focused on the future as we help resolve the challenges facing society today while applying our longstanding principles as a special glass manufacturer
Origins as a special glass manufacturer
Last year‚ 2019, marked the 70th anniversary of Nippon Electric Glass’s (NEG) founding. The company’s origins trace back to 1949, when it was a division in Nippon Electric Company’s Otsu Manufacturing Plant and was spun off as a separate company. It primarily manufactured glass bulbs for radio vacuum tubes. There are anecdotes from that time that describe how NEG stoically adapted to the frequent postwar blackouts by manufacturing everything by hand without any electricity. Nevertheless, despite the handicraft nature of its manufacturing operations, NEG’s origins as a special glass manufacturer stem from those early vacuum tube glass products.
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Tirelessly putting ideas into practice to create Fulfilling our mission as a special glass products infused with the very best of human manufacturer through creative manufacturing civilization that generates new value
Special glass was first developed for use with the practical In the last 30 years, NEG has grown to become a global incandescent light bulb invented by Thomas Edison in 1879. manufacturer of special glass with a firmly established market While testing his incandescent light bulb, Edison discovered presence worldwide. However, in today’s world, the focus of how vacuum tubes could be used as an electric control value has shifted away from physical things and onto mechanism. Given that NEG started its existence as a vacuum information, as exemplified by the establishment of large IT tube glass manufacturer, it would seem that special glass platformers in the U.S. Developments in mobile devices and manufacturing was the company’s destiny. self-driving vehicle technology can be seen as heralding a new direction for civilization. Special glass is a product that must be manufactured at a consistently high quality and in a large volume suited to a wide But this does not mean that physical things are now without range of uses. Given the insufficient power sources at NEG’s value. The growing value of information creates a demand for founding, there was a large gap between the company’s physical things that provide new value through their facilitation production capability and the advanced technology required to of information. The development of products that realize this manufacture special glass. I believe what bridged this gap was new value represents both an urgent challenge and significant the drive and ability of our predecessors who were the driving business opportunity for NEG. force behind NEG’s development. In order to make high-quality special glass, a technological foundation enabling the melting Another area where major change is underway is the global and superior forming of glass according to application and economy, which is becoming increasingly borderless and compositional requirements is needed. Moreover, it is essential interconnected and, as a result, contributing to a host of to develop equipment and facilities capable of performing this challenges. Examples of these challenges include an increase production in an efficient manner. in natural disasters on a global scale as a result of global warming and the spread of infectious diseases caused by the For the early members of NEG, who had neither the equipment, likes of the recent novel coronavirus. It is hoped that the money, nor technology, I believe it was a tireless process of trial development of new materials and resources will help in and error that yielded the integration of knowledge and an solving these challenges. And as a special glass manufacturer, inquisitive mind that finally allowed them to overcome their there are many areas in which we can contribute, including limitations. Never shy away from a challenge, be ready to learn through products that facilitate medical advancements, such from mistakes, and, no matter what, have the tenacity to get the as glass tubing for pharmaceutical and medical use and job done. These have been among the cornerstone principles radiation-shielding glass, and products that facilitate better fire of NEG for the entirety of its 70-year history. safety, such as high-performance fire-rated glass, as well as through the development of environmentally friendly products, Over time, NEG has branched out into the manufacture of such as glass fiber and phosphor-glass composite, and the various other special glass products, such as fluorescent light manufacture of materials and resources that contribute to CO2 glass tubing, glass tubing for pharmaceutical and medical use, reduction and environmental sustainability. CRT glass bulbs, glass fiber for reinforced plastics, and glass for flat-panel displays. And as civilization has grown and We will continue to apply our longstanding corporate principles developed, so too has the market for these products. It should and values as a future-focused, special glass manufacturer also be noted that NEG has never ventured into a new product that is firmly committed to fulfilling its mission in addressing the area in response to profitability. Rather, we venture into areas challenges facing society. where we identify growing societal needs, regardless of how small the market may be at the time. This has sometimes meant persisting with products that are unprofitable until civilization develops to a point that it needs them. And when the market subsequently starts to grow, our business is able to hit the ground running with a polished product backed by tried and tested manufacturing technology. Hence, “creating products Masayuki Arioka infused with the very best of human civilization” is an integral Chairman of the Board part of our corporate philosophy. Nippon Electric Glass Co., Ltd.
Integrated Report 2019 3 History of Nippon Electric Glass
Our History of Creating Value
Amid the chaos following the Second World War, Nippon Electric Glass (NEG) was established in 1949 in Otsu, Shiga Prefecture, with a total of some 90 employees. We started out with the production of vacuum tube bulbs for radios. Then our product line-up expanded to glass for cathode-ray tubes (CRTs), glass fiber, glass for optical communication and electronic devices, and glass for flat-panel displays (FPDs). Over the years, our line-up has grown and evolved to match the needs of the times and to develop and provide glass products that contribute to the betterment of everyday life. We will continue with our efforts to uncover the unlimited possibilities of glass and seek to create new value for society through advanced creative manufacturing. 1980 Established a special-purpose subsidiary 1971 for hiring persons with disabilities, the 6th company in Japan to do so Established the Notogawa Plant, 1965 equipped with state-of-the-art environmentally friendly facilities 1988 Started production of black-and-white 1949 CRT glass (Started production Started CRT glass operations in the U.S. of color CRT glass in 1968) 1973 via a joint venture (which was to become Separated from Nippon Electric a wholly owned subsidiary in 1993) Company as an independent Company stock listed on the Tokyo company (recognized as the date Stock Exchange and Osaka on which NEG was founded) Securities Exchange
Business
From 1980 From 1970 From 1960 From 1981 Capillaries for optical connectors 1949 1970 Powder glass 1962 1987 Alkali-free substrate glass for TFT-LCDs Neoceram super heat-resistant 1973 1954 glass-ceramics Neopariés™ glass-ceramic building Glass tubing for pharmaceutical material 1988 and medical use 1963 1976 FireLite™ fire-resistant glass-ceramics Glass for thermos flasks for fire-rated doors Glass fiber
Products 1958 Radiation-shielding glass 1981 Capillary formation using the precision 1974 redrawing process All-electric melting furnaces 1961 with no fuel-derived CO2 emissions 1987 brought online Automatic pressing process Production of thin sheet glass by applying 1951 the continuous redrawing process Automated 1967 1976 production of Heat-resistant glass produced Glass fiber formation using glass tubing using the rolling process the spinning process Production using the Danner technologies process
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2015 Enacted a new corporate philosophy structure From 2010 2016 Strengthened glass fiber production From 2000 capacity in Malaysia Acquired the European glass fiber business of PPG Industries Overseas expansion 2011 1991 (South Korea, China, and Taiwan) of FPD glass business Started production of glass tubing Established Nippon Electric Glass for pharmaceutical and medical use (Malaysia), NEG’s first wholly owned in Malaysia overseas subsidiary 2007 Concluded a comprehensive 1995 university–industry collaboration 2017 agreement with the University Established a CRT glass production of Shiga Prefecture (ongoing) Acquired the U.S. glass fiber business base in the U.K. of PPG Industries
Towards our vision of “the world’s leading manufacturer of special glass”
2019 marked the 70th anniversary of NEG’s founding. As we work steadily From towards the goals of our current medium-term business plan, 2015 EGP2021, our eyes remain firmly fixed From on becoming the world’s 2010 leading manufacturer From of special glass. 2000 2017 From New glass tubing material 1990 2011 for pharmaceutical and medical use Dinorex™ glass for chemical (with high light-shielding properties) 2005 strengthening G-Leaf™ ultra-thin glass 1995 Glass tubing for LCD backlights 2017 1997 Flat glass fiber Glass-ceramic ferrules for optical 2013 connectors 2009 Lumiphous™ phosphor-glass composite Glass ribbon 2019 High-performance glass substrates for displays
2018 CRT glass production equipment 2010 certified as Mechanical Engineering Heritage (of Japan) Ultra-thin glass and resin lamination 2000 Production of FPD glass by applying 1993 the overflow process Japan’s first oxy-fuel firing furnaces are brought online, reducing CO2 emissions and improving thermal efficiency
2000 Optical thin film coating 1998 Float process
Integrated Report 2019 5 Value Creating Process
Utilizing six resources of capital for our business operations, we pursue the unlimited possibilities of glass while providing value to society through our innovative products. We will continue our efforts to realize sustainable societies.
Main Input Strengths of Nippon Electric Glass Sustainable Corporate Growth
See page Fiscal 2019 “Manufacturing of Nippon Electric Glass” 8 Five Key Factors Be a presence that coexists Corporate Goal with and contributes to Financial Capital Corporate Philosophy society Total assets Research and Create glass that makes We strive to build a brighter future Development dreams come true ¥ 664.8 billion for the world by uncovering Manufacturing Develop innovative Cash and cash the unlimited possibilities Processes processes equivalents of glass for more advanced Environmental Achieve sustainable ¥ 100.9 billion creative manufacturing. Preservation creative manufacturing Human Resource Be a group of professionals Our Values Development with aspirations and Manufactured Capital enthusiasm Noncurrent assets • Customer first • Get the job done ¥ 423.3 billion • Broad minds and open communication EGP2021 • High ethical standards Medium-term Business Plan Capital expenditures • Consideration for the environment ¥ 20.1 billion Operational Activities • Electronics and Information Technology Intellectual Capital Outstanding Features of Glass R&D expenditures Glass is a unique material in that it can be customized to different shapes with a wide ¥ 6.9 billion variety of functions by modifying its
composition and by changing the methods of Displays Optical and electronic forming and processing. Moreover, it has an devices • Performance Materials and Others Human Capital attractive surface texture and brilliant Number of employees appearance. 6,482 Strengths of Our Manufacturing Glass fiber Medical care, heat resistance, Our strength in manufacturing has two building materials Social and aspects. The first is our product development, CSR Activities Relationship Capital which is based on cutting-edge core technologies. The second aspect is our • Environment Group companies • Diversity and inclusion proprietary technologies, which we have • Community contribution 11 (domestic) accumulated in our production facilities over 15 (overseas) the past 70 years since our establishment.
Natural Capital Strengths of Our Organization and Culture Since our establishment, we have nurtured and Electricity passed on our corporate ethos (simplicity and 2,490,000 MWh fortitude) and our corporate culture (an open Water workplace in which top executives and employees communicate freely with one m3 8,630,000 another).
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Product Markets Major Output Creation of Social Value
Fiscal 2019 As a global company, we also pursue the SDGs*. We address issues in the context of each country in an Financial Results effort to bring about safer, more affluent, and more Net sales comfortable societies.
Automotive and The world’s leading manufacturer of special glass Transportation ¥ 257.1 billion Meeting society’s challenges Operating profit Reduction of Sustainable Development ¥ 15.9 billion environmental impact Goals (SDGs)
ICT and Cash dividends Semiconductors ¥ 100 /share per year (DOE 2%) Utilizing natural energy Intellectual Medical Care Property Number of acquired patents Innovations in ICT 2,423
Displays Diversity and Inclusion Advancement Percentage of employees in medical care with disabilities 4.1 % Improvements Lighting Health and Productivity Management in safety and comfort Outstanding Organization of daily life Certified 2 years in a row
Energy Advancement Environment in transportation Sales of environmentally friendly products (p.45) Approx.¥ 80 billion Creating a robust Social and durable social Infrastructure infrastructure Community Contribution Number of participants A fair work environment in community activities and human resource Home Appliances training to develop and Housing Approx.300 people tomorrow’s leaders Equipment
* The Sustainable Development Goals (SDGs) were adopted in 2015 by the United Nations with the goal of achieving common targets by Reinvestment 2030 such as overcoming poverty and halting climate change.
Integrated Report 2019 7 Manufacturing of Nippon Electric Glass
Over the years, we have developed a wide range of glass technologies including material design and evaluation, melting, forming, and processing. These technologies are brought together in our production facilities, which are the foundation for the development of new applied technologies. It is through these technologies that we can create unique, high-function glass products.
Extensive Glass Technologies
Basic Glass Technologies
Glass is a material that can incorporate almost any element. We seek to make high-performance glass by considering the features of each element and adjusting its composition. To create optimally functional glass, we repeatedly carry out each stage Material design of production—modifying the composition, test melting, processing, and evaluating. and evaluation We developed technology for analyzing traces of RoHS-designated hazardous substances contained in glass. In 2006, we acquired ISO/IEC 17025 testing laboratory certification. Analysis results obtained in our accredited testing laboratory meet global standards, thereby ensuring the quality of our products.
Our melting technology and the design of our melting furnaces involve advanced and precise furnace operations—for example, Melting controlling combustion and temperature while reducing environmental burdens. These technologies help us to produce high-quality glass.
One thing that sets our group apart from the competition is our Process design wide range of forming technologies. These technologies enable us Forming to achieve high dimensional accuracy and high productivity. We and development can use the most suitable forming method for each product and respond to the various needs of our customers.
New functions and features are given to glass through a variety of working processes. These processes include reforming by heating Processing and softening, crystallizing by firing, coating films, precision cutting and polishing, and compounding with crystals or organic substances.
Through close cooperation among R&D departments, process technology departments, and Commercialization departments in charge of commercializing new products, we strive to create “glass that makes dreams come true.”
Applied Technologies • Hybrid technologies (use of thin film and laminating with other materials) • Precision forming and processing • Ultra-large substrate manufacturing • Ultra-thin substrate forming • Crystallization
Value Chain Planning Research and Manufacturing Sales development
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Glass with a Variety of Business Areas Forms and Functions
Expansion and reinforcement areas
Automotive and Transportation • Lightweight materials • Vehicle lighting • Displays Substrate Tube • Self-driving vehicles • Vehicle cameras • Electronic devices ICT and Semiconductors • High-speed, large-capacity optical communication devices (5G compatible) Sphere Fiber • Next-generation semiconductors (compact and high definition, advanced functions) Medical Care • Advanced pharmaceutical containers • Advanced medical equipment and facilities Powder Molded Displays • Next-generation displays (high definition, thin and lightweight, flexible)
Hybrid products Strategic development areas Functions of special glass Optical Lighting Light absorption, wavelength conversion, optical thin film • Next-generation lighting (energy saving, high luminance, high output) Electromagnetic Insulation, dielectric, conductive film, magnetism Energy Thermal • Renewable-energy systems Heat resistance, fire prevention, • Secondary batteries low-temperature sealing Mechanical Social Infrastructure High strength by chemical strengthening • High-function fire-rated equipment or crystallization • High-performance structural materials Chemical (safe, durable, lightweight) Acid resistance, alkali resistance, sustained release of chemicals Home Appliances and Housing Equipment Others • High-function home appliances, Gas barrier, plastic housing materials and cement reinforcement • Multifunction wall materials
Integrated Report 2019 9 Relationship with Society throughout the Value Chain
In each process of the value chain, we strive to increase the positive effects of our business activities and decrease the negative effects. We will continue to work hand-in-hand with our stakeholders in order to raise corporate value, solve society’s problems, and achieve the SDGs.
• Donations to local communities • Support for the socially vulnerable (in China, South Korea, e.g.)
Increase positive effects • Health and productivity management
• Endowment course at University of Shiga Prefecture • Science education for schools (send NEG employees to teach) • Support for the Biwako Floating School • Factory tours • Hiring and training of the disabled • Systems for employee education and training, self-development programs
Procurement Raw Suppliers Production materials and distribution Decrease negative effects
• Using resources • Avoiding use of • Thorough enforcement • Manufacturing using no harmful effectively conflict minerals of green procurement substances • Recycling water • Forbidding of child guidelines • Preventing pollution of the and raw labor atmosphere, waterways, and soil materials • Health and safety activities • Reduction of • Compliance with the • Recycling packaging • Employee health improvement environmentally U.K.’s Modern activities harmful Slavery Act substances • Modal shift in procurement • Strict control of wastewater • Thorough enforcement (protecting water quality) of basic procurement policy (open and fair • Human rights initiatives business dealings) • Committee on Human Rights Issues • Shiga Prefecture Human Rights Issues Liaison Committee (corporate board member) • Compliance with the U.K.’s Modern Slavery Act • Compliance with Japan’s Equal Employment Opportunity Act
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• Glass tubing for pharmaceutical use • Radiation-shielding glass for patient diagnosis • Flat-panel detector glass for X-ray diagnostic devices • Antimicrobial glass
• Resin-reinforced glass fiber to reduce the weight of automobiles • Resin-reinforced glass fiber for wind turbine blades • Glass substrates for FPDs, G-Leaf™ ultra-thin glass • Helping women reach their full • Lamion™ lightweight composite material potential • Lumiphous™ phosphor-glass composite • Support for raising the next generation Note: See page 45 for details on our environmentally friendly products.
• ARG Fiber for reinforcement in construction • Diversity initiatives • Development and sales of glass for optical • Contribution to cutting-edge communication and electronic devices science and technology • Occupational health and safety activities, work-style reforms • Lamion™ for train station platform doors • FireLite™ fire-rated glass for fireproof public facilities • Formulation and dissemination of • Glass fiber for reinforcement in construction our corporate philosophy structure • Glass fiber for resin railroad ties
Final product Sales Product use disposal
• Recycling water and raw materials • Recycling • Reuse of • Capture and reuse of exhaust gas packaging waste • Pursuit of highly efficient glass manufacturing • Extending the life of facilities • Modal shift in shipping • Joint • Global warming mitigation shipping with measures (e.g., reduction of CO2 customers emissions) (e.g., • Environmental education reciprocal utilization of • Supporting local forestry trucks) association activities • Removal of non-native fish species in Lake Biwa • Forest conservation around factories
• Thorough compliance • Human rights initiatives
Integrated Report 2019 11 Research and Development
Uncovering the Unlimited Possibilities of Glass Glass is a unique material that can be customized into different shapes with a wide variety of functions by modifying its composition and altering the various forming and processing methods used. By combining our accumulated glass technologies with original ideas, we continue to deliver a variety of high-performance glass products matching contemporary needs.
R&D Policy We pursue basic research encompassing material design and medical care, and displays. evaluation, process design and development, commercialization built on trial production and product Under our EGP2021 medium-term business plan, we are making refinement, and computer science, which includes ICT and research and development a top priority. By incorporating AI-driven data analysis. With this basic research we combine product, technology, and manufacturing processes into a single, applied research in areas including precision forming and integrated development structure, together with more robust processing and ultra-thin substrate forming. We aim to develop marketing functions and other measures, we facilitate stronger glass products that provide value for society, as we focus on collaboration among our different departments to create “glass expanding business in growth areas such as automotive, ICT, that makes dreams come true.”
R&D and Business Development Basic research and applied research Business expansion in growth areas
Automotive & ICT & Precision forming and processing transportation semiconductors Material design and evaluation Ultra-thin substrate forming Medical care Displays Hybrid technologies (use of thin film and laminating with Process design other materials) and development Commercialization (melting, forming, research Ultra-large substrate manufacturing Lighting Energy processing) Home Crystallization Social appliances & infrastructure housing Computer science equipment
R&D Organization Our staff function departments (Research & Development material science, the foundation of glass research. The Group, Process Development & Engineering Group) carry out Corporate Strategy Division supports other departments in R&D such as material design and development, property information analysis and planning. evaluation, and process design and development. Meanwhile, the line departments carry out practical development such as Also, as part of our measures to realize EGP2021 targets, we commercialization of new products, product improvement, and have created an integrated development structure devising advanced functions. incorporating the three departments responsible for research and development, process technology, and new product The staff function departments and the line departments commercialization. In conjunction with this, we have begun collaborate on strategic development aimed at solving implementing B2B marketing activities, which utilize a medium-term development issues. The Fundamental cross-sectional marketing structure. Technology Division works with institutions around the world in
Collaboration between Departments Staff function departments Line departments Basic and applied development Business sector development
Practical development Research and Material design, material development, property evaluation development Commercialization research Process design and development (melting, forming, processing) New products
Process technology Strategic developmen Innovative processes
Fundamental technology Corporate strategy & planning Marketing Intellectual property
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R&D Investment R&D Expenditure (Billions of yen) 10.0 10.0 We are working tirelessly in R&D in order to realize our 8.0 corporate philosophy: “We strive to build a brighter future for 7.5 6.9 the world by uncovering the unlimited possibilities of glass for more advanced creative manufacturing.” We also aim to 5.0 integrate and evolve our manufacturing processes and product development, and reflect the results in our management 2.5 strategy in order to realize medium-to-long-term growth. Our R&D expenditure was 6.9 billion yen in fiscal 2019. We will 0 continue boosting our R&D activities. 2016 2017 2018 2019 2020 2021 Forecast EGP2021 target
Intellectual Property At NEG, our approach to intellectual property is to pursue Number of Acquired Patents Acquired Patents by Area Patents acquired Patents acquired systematic synergy between glass manufacturing and glass overseas in Japan Medical care 3% 2,500 2,423 product and process R&D in order to generate technological Social infrastructure 3% Others 1% Energy 5% results that we protect and utilize as intellectual property 2,000 Home appliances 6% providing us with competitive advantages, which contribute to 1,260 & housing equipment 1,500 Automotive the development of the company. And we are increasing the & transportation 7% Displays 49% number of patents we hold domestically and overseas, 1,000 Lighting 8% focusing on key business areas and areas of future business 1,163 development, so that we will have a network of patents to 500 ICT & semiconductors 18% effectively support our business. 0 2016 2017 2018 2019
R&D NEWS
New product New product Announced July 18, 2019 Announced October 10, 2019
World’s Substrate glass highest-performance for smart glasses infrared lens
The growth of the infrared camera market in recent years has The market for smart glasses is expected to grow as technologies raised demand for high-performance, mass-produced lens. such as augmented reality and mixed reality become increasingly NEG’s infrared transmitting glass product raises the bar in terms of more advanced. This glass product achieves the world’s highest thinner, high-performance infrared lenses by offering superior refractive index and internal transmittance of any substrate glass infrared transmitting performance than existing products while also for smart glasses, thereby facilitating the development of devices being readily suited for mass-production. that are thinner and lighter with better visibility.
New product New product Announced November 21, 2019 Announced December 3, 2019 3D printer paste Lead-free for high-precision low-melting-point glass ceramic modeling Ceramic material Ceramic material frit seals at 380°C with the product without the product Ceramic materials are one category of modeling materials used in Glass frit is valued for being strongly adhesive, highly airtight, and 3D printing. NEG has developed a paste that makes it possible to weather-resistant and is used in a wide range of sealing perform high-precision ceramic modeling. Mixing this paste into applications for electronic components. NEG’s lead-free glass frit is the modeling material allows for precise control over the curing capable of low-temperature sealing (380°C) while providing a width and depth of the ultraviolet curing resin which, in turn, allows stable glass composition and sufficient weather resistance. for complex and detailed modeling.
Integrated Report 2019 13 Products and Technology
Glass for Optical and Electronic Devices
Glass for optical and electronic devices is used mostly in places where its application goes unseen. However, as a material of indispensable value to technological progress, it is used in a host of different fields, including home appliances, smartphones, automobiles, semiconductors, and telecommunications infrastructure.
General Manager, Electronic Products Division, Production Takuji Oka
Main Products and Applications
NEG’s optical and electronic device-related products comprise the following five categories: powder glass, glass tubing, glass substrates, optical communication-related products, and phosphor-glass composite.
Powder Glass and Glass Tubing Optical Communication-related Products The electrical insulation and chemical stability of these glass products NEG’s product range includes lenses, prisms, and precision capillary are utilized for a wide range of applications, such as providing a tubes, all of which have a high level of dimensional precision down to protective covering for semiconductor elements, sealing material for the micron level. These products are put to a variety of different uses, compressor terminals in air conditioners and other devices, and such as in trunk lines including undersea cables, mobile phone base encapsulating material for various types of sensors. stations, and household optical communication devices.
Powder glass Glass tubing Optical communication-related products
Glass Substrates Phosphor-glass Composite Cover glass for CMOS image sensors with high transparency and glass This glass is a composite containing a phosphor powder dispersion and with extreme flatness used in highly functional semiconductor is used to convert blue LED light into white light. Because of its high manufacturing are available. thermal resistance, it is widely adopted for headlights and other applications where strong light is required.
Cover glass for image sensors Glass for supporting Lumiphous™ phosphor-glass Used in an automobile LED semiconductor wafers composite headlight
Glass Used in Optical Communication Networks
In the ICT industry, the widespread adoption of smartphones has driven demand for larger and faster data transmission, and in 2019, 5G service was launched as the next-generation telecommunications standard. These 5G systems comprise optical networks that transmit to base stations, the transmission of radio waves from the base stations to the user end-point, and the smartphones, IoT devices, and terminal devices used at those end-points. In order to facilitate the efficient transmission of large volumes of data to base stations within the optical network, a variety of high-precision micro capillaries manufactured in a variety of different shapes are utilized.
In addition, the optical transceivers, which perform interconversion between optical and electrical signals during information transmission are equipped with a variety of lens components that contribute to greater transmission efficiency and device miniaturization.
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Glass Used in Optical Communication Networks
Access networks In high-speed optical transceivers In WDM filter modules In optical transceivers
Metro networks
Square lenses AR-coated ball lenses Variously shaped micro capillaries Ball lens caps Telecommunications carrier buildings
Office buildings Micro prisms Windows for photonic devices Data centers Multi-dwelling For reinforcing optical fiber units connections Optical closures Condominiums Mobile phone base stations
Neoceram N-0 and N-11 Houses
Developing On-board Vehicular Applications
Currently, with the exception of optical communication-related products, all categories of glass for optical and electronic devices manufactured by NEG have on-board vehicular applications. With the automotive industry undergoing the sort of transformation that only comes along once in a century, CASE is being developed as the standard bearer for next-generation technological development. And it is the field represented by “A” (Autonomous), in particular, where NEG’s glass for electronic devices is expected to be put to use.
Thanks to the high quality and smoothness achieved as a result of NEG’s advanced glass melting and thin film coating technology, NEG’s image sensor cover glass helps ensure the high performance and stability of image sensors utilized for self-driving operations. In addition, band-pass filters for use in LiDAR sensors capable of imaging objects in 3D, and infrared transmitting glass used in infrared cameras capable of identifying people even at night, are being developed. In particular, NEG’s infrared transmitting glass offers superior infrared transmitting properties compared with germanium single crystal or chalcogenide glass, thereby enabling a brighter, clearer image.
Glass Used in On-board Electronic Devices 3D LiDAR Engine peripherals Band-pass filters for 3D LiDAR Spark plugs Powder glass Temperature sensors Glass tubes for encapsulation Vehicle cameras Powder glass Infrared absorbing filter Cover glass for image sensors Infrared transmitting glass
Front-end modules Light sources for LED headlights Phosphor-glass composite LTCC substrates Infrared absorbing filters Infrared transmitting glass
Moving forward, NEG is strengthening its marketing functions to ensure a more comprehensive understanding of customer needs, and this, in turn, will be used to speed up the entire process from developing new products to bringing them to market. To achieve this, NEG will rely not only on technical integration in-house but will also actively seek out cooperative ventures, tie-ups, and other strategic alliances with outside entities possessing innovative technologies.
Integrated Report 2019 15 Message from the President
Working as One to Pursue Measures Aimed at Achieving the Targets of the EGP2021 Medium-term Business Plan
Reviewing the tough results of EGP2021’s first year and explaining the new initiatives and approaches targeting further growth
Motoharu Matsumoto President Nippon Electric Glass Co., Ltd.
16 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Performance review for fiscal 2019 Outline of the EGP2021 Medium-term Business Plan Results for fiscal 2019, the first year of the EGP2021 medium-term business plan, show a decrease in both sales Basic Policy and profits. Net sales declined 14.4% from the previous fiscal Pursue further growth toward becoming the world’s leading manufacturer of special glass year to 257.1 billion yen and operating profit declined 35.9% from the previous fiscal year to 15.9 billion yen. Slogan Strong Growth—Raise Aspirations and Break through Walls These tough results are due primarily to environmental Growing our operations, our human resources, our technological foundation, and our developmental strengths. changes affecting our main businesses. With regard to display Making “strong” corporate fundamentals our priority. glass business, although the market itself is growing Priority Areas moderately, operational adjustments among our panel (1) Research and development (2) Business strategies manufacturer customers have had a negative impact. Also, (3) Strategic investments (4) CSR with regard to glass fiber business and its associated Performance Targets production and supply structure comprised of four key bases Net sales ¥300 billion worldwide (Japan, Malaysia, Europe and the U.S.), stagnation • Electronics and Information Technology: ¥150 billion in the automotive market and other areas caused sales to • Performance Materials and Others: ¥150 billion decline, which forced the bases to make major production Operating profit ¥25 billion adjustments and, in turn, constrained profits. Operating margin 8%
Net sales Operating profit Operating margin (Billions of yen) （%） These new products are developed from seed ideas; thus, 350 16 300.3 300.0 customers need to be made aware of how they can make use 300 282.4 14 257.1 260.0 of them. Since we believe that the key to this lies in marketing, 250 239.4 12 we have established a new, cross-sectional marketing structure to promote product commercialization. 200 8 10 150 8 66 Currently, our efforts are focused on dedicated prototype 100 6 equipment. In addition to large-scale prototype furnaces, we 50 19.5 32.2 24.8 15.9 16.0 25.0 4 are developing systems and structures to enable trial 0 2 production of a variety of products. Also, we are making efforts 2016 2017 2018 2019 2020 2021 Forecast EGP2021 focused on materials development and process improvement, target such as introducing equipment that will enable us to perform Revising the medium-term business plan and previously outsourced evaluations quickly and internally and revitalizing performance based on policies in making effective use of big data. Research and development priority areas expenditures for fiscal 2019 were 6.9 billion yen. We anticipate In light of the fact that the results for fiscal 2019 and the outlook that they will grow to 8.0 billion yen for fiscal 2020 and 10 for the future are below initial projections, the performance billion yen for fiscal 2021. targets of the EGP2021 medium-term business plan have been revised to 300 billion yen for net sales (revised from 350 billion 2-1. Business strategies: Display glass business yen), 25 billion yen for operating profit (revised from 35 billion Improving equipment performance yen), and an operating margin of 8% (revised from 10%). In order to strengthen our presence in the expected growth Despite concerns about the long-term effects of the novel market of China, it is extremely important that we make a coronavirus, we remain steadily focused on the four priority focused effort to expand sales. We are building relationships of areas of EGP2021 while also ensuring that we can flexibly trust with Chinese customers, which will lead to sales adapt to changes in the external environment. expansion. With regard to equipment and facilities, we have seen a tremendous improvement in performance over the past 1. Research and development: few years. This has led to a tangible increase in our Strengthening the development system and competitiveness in productivity, quality, and various other establishing a new marketing structure areas. Also, we are pursuing strong investment in China, which Multiple new products have been released using the new, we believe will help solidify our position in the market, such as three-group development structure, which integrates the investment in production capacity increases at the Xiamen product, R&D, and manufacturing process departments. facility, which is responsible for melting and forming.
Integrated Report 2019 17 Message from the President
Moving forward, we will continue to utilize our world-class 3. Strategic investments: LTCC for the 5G era production processes to create various new products; for NEG launched a low-temperature co-fired ceramics (LTCC) example, manufacturing high-performance display glass joint venture in October 2019 with the aim expanding business substrates with exceptional dimensional stability under in the optical and electronic devices market. This was the high-temperature process, and cover glass (glass for chemical realization of a longstanding goal to incorporate not only glass strengthening) with superior properties. We will also materials but also devices within our manufacturing. LTCC are concentrate our efforts on developing and expanding sales of used in a wide range of areas, including automobiles, such new products that are highly responsive to market needs. telecommunications, and semiconductor manufacturing, thanks to their superior electrical properties (e.g., low dielectric Net sales for FPD glass business and low resistance properties). As the world moves into a new, Expand share of FPD market through capacity 5G era, we anticipate their importance will grow even further. increases and profitability enhancements We are currently working to strengthen production capacity in (Billions of yen) order to accommodate growing demand. 100
With regard to M&A and corporate alliances, we are exploring a variety of different options. Moreover, we want to ensure that
0 we remain ready and able to handle the same broad scope of 2016 2017 2018 2019 2020 2021 Forecast EGP2021 business as we always have. target
2-2. Business strategies: Glass fiber business 4. CSR: Pursuing sustainable growth Improving productivity and strengthening Our three priority themes are the environment, diversity and development inclusion, and community contribution. Of these, we have We will revise our production systems, manufacturing noticed a significant change in global attitudes toward the processes, and product mix globally. The pressing concerns environment, as evidenced by a marked increase over the for Europe and the U.S., where we recorded large impairment course of fiscal 2019 in the level of attention paid to losses, are improving productivity and achieving profitability. In greenhouse gas emissions. Although the business we
the U.S., we will consolidate our three production facilities into undertake is energy-intensive, we actively work to reduce CO2 two. Furthermore, we will take steps such as introducing by utilizing glass manufacturing processes that minimize automation equipment in order to ensure more stable quality greenhouse gas emissions to a degree that sets us apart from and increased productivity. In Europe we are implementing other glass manufacturing companies. These processes have measures to streamline our organizational structure. shown themselves to be quite effective, and we are working on introducing them across all of our main products. Additionally, we are working to expand the customer base for our high-value-added products, such as high-modulus glass
fiber and flat glass fiber. We are also working to bolster the Our Vision development of new, more market needs-focused products. The world’s leading manufacturer of special glass
Net sales for glass fiber business EGP2021 is positioned as our initiative to realize five key factors Recovery in sales and profitability in line Full-scale Five Key Factors with the moderate recovery in the market market recovery Corporate Goal (Billions of yen) Be a presence that coexists with 100 and contributes to society Research and Development Manufacturing Processes Create glass that makes Develop innovative processes dreams come true
0 Environmental Preservation Human Resource Development 2016 2017 2018 20192020 2021 Forecast EGP2021 Achieve sustainable Be a group of professionals target creative manufacturing with aspirations and enthusiasm
EGP2021
EGP2018
18 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
With regard to diversity and inclusion, we remain committed to Aiming to achieve employee satisfaction and contribute to society our existing efforts, particularly those aimed at increasing the percentage of employees with disabilities in our workforce. We My aim is to ensure that our employees can honestly say, “I’m are also pursuing next-step initiatives, such as expanding glad to be working for NEG.” If our employees are not satisfied telecommuting and flextime options, in order to create an with their jobs, it prevents us from being able to provide quality environment where employees can feel a greater sense of products and services. Also, being able to take pride in the satisfaction in their work. We are also investing in greater fact that their jobs and the products created by them are training and educational opportunities for employees. This benefiting the world is a contributing factor in employee applies not only to younger employees, as evidenced by the satisfaction. I am proud of the fact that NEG is at the forefront threefold increase in time allocated for manager training. We of its industry in terms of environmentally friendly implement training that aligns with the life stages of employees, manufacturing, as demonstrated by its reuse of glass and its such as those for employees age 50 and up, which is reduced greenhouse gas emissions. Through the incorporation designed around considerations of life in old age. of our refined technology into services and solutions, which we offer to glass companies worldwide, we can contribute to a With regard to community contribution, we will continue to reduced environmental footprint as well as expand business actively pursue educational and professional development opportunities for NEG. initiatives, such as the collaborative arrangement we maintain with the University of Shiga Prefecture and the various To shareholders and investors educational support initiatives we undertake for local schools. As a company with a strong financial foundation, returning profits to shareholders is a key management priority, and one Strengthening corporate governance of our fundamental policies is to provide stable, ongoing With regard to corporate governance, we currently have three dividends to investors. Having said that, although the dividend outside directors who contribute to NEG’s efforts in improving for fiscal 2019 is a deferment from the previous year, we its governance system and effectiveness. In order to ensure maintain a flexible approach to providing returns to our that outside directors have a firm understanding of the shareholders, in addition to stable dividends, depending on the business situation at NEG, they are provided with all of the progress made on the medium-term business plan. information they need to perform their duties as outside directors. This includes not only being part of the deliberations Fiscal 2020 is the second year of EGP2021. We look forward to of the board of directors but also having regular interviews with your ongoing support, as we at the NEG Group do our utmost executive officers and general managers, and having access to turn around our business performance and achieve our to the minutes of Management Committee meetings and other targets. important meetings. And the outside directors are always candid with the feedback they provide us. I always appreciate the range and depth of advice they are able to provide based on their collective knowledge and experience.
Another way in which we are making our corporate governance more robust is via the Nomination and Compensation Advisory Committee. This was established on March 27, 2020 to ensure the transparency and objectivity of not only representative director appointment and dismissal but also the determination of remuneration for directors.
Integrated Report 2019 19 Financial and Non-financial Highlights
Financial Highlights (Consolidated)
Net Sales, Operating Profit, Ratio of Overseas Net Sales Operating Profit Ratio Net Assets, Equity Ratio (Billions (%) (Billions (%) (Billions (%) of yen) 300.3 of yen) of yen) 300 282.4 40 20.0 600 543.7 519.8 521.5 251.1 257.1 509.5 250 239.4 100.0 32.2 500 477.1
30 15.0
200 82.2 83.5 83.5 80.0 24.8 400 100.0 78.6 11.4 76.9 22.0 19.5 150 60.0 20 10.0 300 75.0 8.3 15.9 70.6 72.7 70.5 71.2 71.0 8.8 8.2 100 40.0 6.2 200 50.0
10 5.0
50 20.0 100 25.0
0 0 0 0 0 0 15/12 16/12 17/12 18/12 19/12 15/12 16/12 17/12 18/12 19/12 15/12 16/12 17/12 18/12 19/12
Capital ExpendituresInterest-bearing Debt Cash Dividends per Share*1 (Billions (Billions (Yen) Interim dividend of yen) of yen) 120.6 100 100 60 120 100 109.7 112.0 52.9 90 101.9 49.2 49.3 100.4 50 100 80 80 46.4 80
40 80
60 50 50 30 60 40 40 40 40 20.1 20 40
20 10 20
0 0 0 15/12 16/12 17/12 18/12 19/12 15/12 16/12 17/12 18/12 19/12 15/12 16/12 17/12 18/12 19/12
*1: Per share of common stock amounts are retroactively adjusted for subsequent stock consolidation. On July 1, 2017, common shares were consolidated at a ratio of 5 to 1 based on the number of shares held by shareholders of record as of June 30, 2017.
20 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Non-financial Highlights
Number of Employees, Percentage of Female Percentage of Employees Percentage of Overseas Employees and Female with Disabilities Employees (consolidated) Leaders (NEG)*2 (NEG and consolidated subsidiaries in Japan)
(Persons) (%) (%) Percentage of female employees (%) Percentage of employees with disabilities Percentage of female leaders 10.0 Statutory employment rate in Japan 8,000 80.0 10.0 10.0 8.9 6,776 6,875 8.2 6,482 7.9 8.1 8.4 8.1 6,000 5,849 63.0 60.0 61.8 60.9 5,220 7.1 7.0 54.5 6.2 47.0 4,000 40.0 5.0 5.0 4.1 Percentage of female leaders = 3.6 3.7 3.7 3.7 Number of female leaders
2,000 20.0 Number of female employees
2.02.02.0 2.2 2.2
0 0 0 0 15/12 16/12 17/12 18/12 19/12 15/12 16/12 17/12 18/12 19/1215 16 17 18 19
CO2 Emissions Intensity Water Intake/Waste Water Industrial Accident (to consolidated sales) Intensity (to consolidated sales) Frequency Rate (NEG)*3 (%) (Ton/million (m3/million Water intake intensity yen) yen) Waste water intensity 10 35 33.5 2.5 9.2 9.4 32.9 8.7 8.7 8.2 30 29.0 28.7 8 26.7 2.0
25 22.0 21.0 6 1.5 20 18.3 17.8 18.2
15 4 1.0
10
2 0.5
5 0.3
0.0 0.0 0.0 0.0 0 0 0 15/12 16/12 17/12 18/12 19/12 15/12 16/12 17/12 18/12 19/12 15/12 16/12 17/1218/12 19/12
*2: A female leader is a female employee who oversees and manages subordinates. *3: Counted January–December every year.
Integrated Report 2019 21 Overview of Business
Electronics and Information Technology
Display-related Business Main Products Glass for flat-panel displays (FPDs) Dinorex™ glass for chemical strengthening
Manufactured by the overflow process, this glass substrate has This glass is used as cover glass in smartphones, tablets, and an exceptionally smooth surface. It is used in displays such as other mobile devices, protecting the device screens against flat-panel TVs and mobile devices. scratching, cracking, and impact damage.
Business Overview In fiscal 2019, shipments of glass for FPDs were down compared with the previous fiscal year due to a decrease in operations at panel manufacturers during the second half of the fiscal year. However, progress was made on the development of new products with exceptional dimensional stability under high-temperature process, and on the development of innovative process technology that realizes higher productivity and less energy consumption.
Glass for chemical strengthening saw a decrease in shipments due to stagnant demand among smartphone manufacturers and others, but there were new adoptions for on-board vehicular displays. Progress was also made on the development of new products with superior properties, with work on samples underway. Demand for solar cell glass was sluggish. Example of Dinorex™ application (Photos: Toyota Motor Corporation) In terms of gains and losses, despite a moderate drop in product pricing and other factors such as prior investments in process technology, the positive impact of NEG’s longstanding efforts to improve productivity helped to stabilize profitability.
Fiscal 2020 Outlook and EGP2021 Medium-term Business Plan For fiscal 2020, we are working to increase sales, especially through sales expansion in the second half of the year.
For EGP2021, we are pursuing sales expansion centered on the growing Chinese market and introducing new process technology across all of our main products. Towards this target, we intend to strengthen our business base in China and have therefore decided to increase the production capacity of our base in Xiamen, China. We are aiming to bring new equipment on-line in the first half Net Sales of FPD Glass Business Forming Capacity of FPD Glass (Billions of yen) (%) Japan South Korea China of 2021, which will contribute to 100 company earnings. 100 75
50
25
0 0 16 17 18 19 20 21 1516 17 18 19 20 21 Forecast EGP2021 Note: End-of-year approximation Forecast target
Akihisa Saeki Director and Senior Vice President, Group General Manager of Display Glass Group 22 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Net Sales (year) Net Sales (quarter)
(Billions of yen) (Billions of yen) 50 200 167.0 38.5 37.9 38.5 147.1 149.1 152.2 40 37.2 35.2 34.9 134.3 32.3 31.7 30 100 20
10
0 0 15/12 16/12 17/12 18/12 19/12 1Q2Q3Q4Q 1Q 2Q 3Q 4Q 2018 2019
Optical and Electronic Device-related Business Main Products Glass for optical devices Glass for electronic devices
This glass is used to extract specific wavelengths A vast range of applications are available, including cover glass for image sensors and powder glass, glass paste, precision glass tubes, and from optical signals and to split optical signals. It phosphor-glass composite in the electronic components in home appliances, plays an important role in the field of ICT. automobiles, industrial machinery, and the like.
Business Overview In fiscal 2019, glass for electronic devices fell below expectations in shipments of powder glass, precision glass tubes, and other products amidst continuing economic uncertainty and a market slowdown in such areas as home appliances and automotive components. Shipments of phosphor-glass composite remained solid, especially for car headlights. Also, in October 2019, NEG launched a joint venture in low-temperature co-fired ceramics (LTCC).
Glass for optical devices-related business remained sluggish due to a slowdown in LTCC Materials Co., Ltd. investment in FTTH, data centers, and other areas, as well as a lack of full-scale investment in 5G (next-generation telecommunications standard). During the latter half of the fiscal year, there was moderate recovery in the telecommunications infrastructure market, helping to boost shipments of products for lens components, optical fiber connection components, and other components.
Fiscal 2020 Outlook and EGP2021 Medium-term Business Plan LTCC products In fiscal 2020, NEG is introducing new products geared towards the 5G, telecommunications infrastructure, and CASE (Connected, Autonomous, Shared/Service, Electric) fields and is pursuing growth in these markets. Our LTCC joint venture business will also contribute to sales throughout the year. LTCC products are used in a wide range of areas, including automobiles, communications devices, and semiconductor processes. They are therefore seen as an area of future growth. In conjunction with all of these, we are pursuing early commercialization of newly developed products as a means of facilitating sales recovery.
EGP2021 demands more aggressive implementation of these efforts. Therefore, stronger collaboration between R&D departments and process development departments, in conjunction with collaboration with our newly established marketing structure, will be used to speed up the entire process from product development to product commercialization in order to achieve our planned targets.
Masahiro Kobayashi Vice President and Group General Manager of Electronic Products Group Integrated Report 2019 23 Overview of Business
Performance Materials and Others
Glass Fiber-related Business Main Products Glass fiber is a material made up of thin glass filaments ranging in diameter from a few micrometers (μm) to Glass fiber around 10 or so micrometers. It has a high mechanical strength and produces exceptional composite materials. It is used in a variety of applications, including reinforced plastics and reinforced cement products.
Business Overview In fiscal 2019, shipments of glass fiber declined as a Status of Global Operations Production consolidation of U.S. and European bases result of continuing stagnation in automotive Adjusting production in response to markets component-related markets and other markets, as well 2 U.S. as less-than-anticipated housing-related demand. We Europe Malaysia 30% responded to this by making operational adjustments at Japan 29% our production bases in Japan, Malaysia, the U.S., and 15% Europe. However, profits were lower than the previous 14% 1 fiscal year as a result of such factors as lower net sales, Consolidating 3 bases into 2 higher costs caused by lower operating rates, and 45% 48% delayed improvement in revenues of U.S. and European subsidiaries. Additionally, an impairment loss mainly on 10% 9% tangible fixed assets and goodwill of U.S. and 0 16 17 18 19 European subsidiaries was recognized. Stronger Note: Using 2016 production capacity as an 2-base index of 1 collaboration structure
Fiscal 2020 Outlook and EGP2021 Medium-term Business Plan In fiscal 2020, the largest challenge is to improve our competitiveness by revising our production systems, manufacturing processes, and product mix globally. Of particular importance is the consolidation of our U.S. production bases from three to two, in conjunction with organizational streamlining and productivity improvement in Europe, in order to restore profitability as soon as possible. On top of this, we are working to expand our customer base for high-value-added products, such as flat glass fiber and special glass fiber. Net Sales of Glass Fiber Business
(Billions of yen) Full-scale market We see fiscal 2020 as a year for institutional reform and recovery improvement. By improving productivity and 100 competitiveness, as well as expanding sales, we are putting ourselves on track to meeting the targets of the EGP2021 medium-term business plan when markets recover in fiscal 2021. 0 16 17 18 19 20 21 Forecast EGP2021 target
Norio Nakamura Senior Vice President and Group General Manager of Glass Fiber Group 24 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Net Sales (year) Net Sales (quarter)
(Billions of yen) (Billions of yen) 50 200 40.1 37.9 148.1 40 35.9 133.2 34.1 32.5 122.8 30.5 30.5 30 29.1 92.2 100 84.1 20
10
0 0 15/12 16/12 17/1218/12 19/12 1Q2Q3Q4Q 1Q 2Q 3Q 4Q 2018 2019
Medical Care, Heat Resistance, and Building Material-related Business
Main Products
Borosilicate glass tubing has excellent acid and chemical resistance and high strength, making it well suited as Glass for a material for ampules, vials, and other medical containers. LX Premium, with its exceptional radiation shielding medical care properties, is used in medical facilities to protect medical personnel from radiation exposure.
Heat-resistant Thanks to its exceptional thermal shock resistance and mechanical strength, this glass is used in heater and glass fireplace windows, the top plates of cooking appliances, and in other housing equipment.
Glass for building NEG’s glass for building materials comes in a variety of shapes with a variety of properties. They include materials fire-rated glass, glass-ceramic building materials, and glass blocks.
Business Overview In fiscal 2019, glass tubing for pharmaceutical and medical use saw an increase in shipments thanks to ongoing, growing demand worldwide, particularly in Asia, for products with superior chemical resistance and workability. Heat-resistant glass experienced a decline in demand during the first half of the year, causing shipments to fall below the previous fiscal year’s level. Shipments of glass for building materials were roughly the same as the previous fiscal year. Example of Lamion™ application Example of FireLite™ fire-rated (Tokyo Metro subway platform glass application doors) (Shonan-Enoshima Station, Shonan Monorail) Fiscal 2020 Outlook and EGP2021 Medium-term Business Plan Fiscal 2020 is an important year for achieving the targets of the EGP2021 medium-term business plan. We are pursuing future-focused initiatives for all of our products. For glass tubing for pharmaceutical and medical use, we are increasing production capacity at our Malaysian base in order to reliably meet the ongoing, growing demand overseas. With regard to heat-resistant glass, we are bolstering our production and sales structures in order to shorten lead time, improve quality, and achieve other improvements that will allow us to expand sales of cooking appliance top plate glass in the European market. For glass for building materials, we will expand sales by promoting the properties of our fire-rated glass, as well as actively developing business in overseas markets.
Unit Sales of Glass Tubing for Pharmaceutical and Medical Use
Unit sales to China
Approx. 5-fold growth
16 17 18 19 20 21 Glass tubing for pharmaceutical and medical use Forecast Forecast
Akira Kishimoto Senior Vice President and Group General Manager of Consumer Glass Products Group Integrated Report 2019 25 Governance Corporate Governance
We will strengthen management supervisory functions and invigorate Board of Directors meetings, which will help our group boost competitiveness and achieve the goals of EGP2021, our medium-term business plan.
hearing explanations directly from the respective executive Our Corporate Governance Policy officers about the business outcomes of the current fiscal year We believe that to increase corporate value and achieve and the budget of the next fiscal year. sustainable growth, it is essential to continue to ensure We have disclosed the reasons for the appointment of each managerial transparency and strengthen supervisory functions director in the Notice of the 101st General Meeting of regarding the execution of business affairs. This is our basic Shareholders (held on March 27, 2020), which is available on policy on corporate governance and we will strive to improve our our website. organization and business systems in accordance with this policy. (https://www.neg.co.jp/uploads/sites/2/202003_101_en.pdf)
▶ Board of Corporate Auditors Corporate Governance Structure We adopt a corporate auditor system. As of March 27, 2020, ▶ Board of Directors the Board of Corporate Auditors consists of four Corporate The Board of Directors makes decisions on important Auditors, two of whom are outside Corporate Auditors. management affairs of our group and supervises the execution Corporate Auditors conduct audits of the Directors’ execution of business affairs. of their duties through assessing business affairs and As of March 27, 2020, the Board of Directors consists of nine corporate assets and setting important audit issues according members (including two representative directors, four inside to auditing policies, plans, and assignment of duties directors, and three outside directors). The Board of Directors established by the Board of Corporate Auditors. They also is presided over by the Chairman of the Board. participate in Board of Directors meetings. Meetings of the To achieve clarity of management responsibility and develop a Board of Corporate Auditors are held monthly in principle, and flexible management system capable of responding to Corporate Auditors share information and exchange opinions changes in the business environment, the term of Directors is at these meetings. Corporate Auditors endeavor to improve the set at one year. Regular Board of Directors meetings are held effectiveness of their audits by deepening their understanding monthly, and extraordinary Board of Directors meetings are about the company’s business operations. For this purpose, held when necessary. In addition, at the budget meeting held the Corporate Auditors take various measures, such as once a year, the Board of Directors monitors management by attending the annual budget meeting and periodically
Diagram of Corporate Governance System (as of March 27, 2020) aaeetmntrn Execution of duties Management monitoring General Meeting of Shareholders
Election and removal Election and removal Election and removal (Board of Corporate Auditors) Independent Auditor Coordination 2 Inside Auditors, 2 Outside Auditors Audit Audit
(Board of Directors) Nomination and 2 Representative Directors, • Management monitoring Consultation () 6 Inside Directors () Remuneration Advisory Committee 3 Outside Directors 4 Directors • Key decision-making Report Chairman of the Board, President 3 Outside Directors Appointment and dismissal of Representative Directors Coordination (Representative Directors) Chairman of the Board President Coordination Election and removal Compliance Committee of Executive Officers Coordination Information Management Committee Management Committee Auditing Division Trade Control Committee (6 full-time members) 18 Executive Officers (4 of whom are Directors) Audit Staff Departments Business Departments Internal Control Divisions Coordination Coordination
26 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
questioning Directors and Executive Officers about their duties Attendance of Board of Directors and Board of Corporate and handling of business affairs. Auditors Meetings in Fiscal 2019 Name Board of Directors Board of Corporate Auditors ▶ Nomination and Remuneration Advisory Representative Masayuki Arioka 15/15 meetings (100%) – Committee Directors Motoharu Matsumoto 15/15 meetings (100%) – Hirokazu Takeuchi 15/15 meetings (100%) – Another way in which we are making our corporate governance Akihisa Saeki 15/15 meetings (100%) – Directors more robust is via the Nomination and Remuneration Advisory Koichi Tsuda 15/15 meetings (100%) – Committee, which was established by a resolution at the Board Hiroki Yamazaki 15/15 meetings (100%) – of Directors meeting on March 27, 2020 to ensure transparency Shuichi Mori 15/15 meetings (100%) – Outside 12/12 meetings (100%) and objectivity when appointing or dismissing representative Reiko Urade (Since assuming office in – Directors March 2019) directors and when determining the remuneration of directors. Hiroyuki Ito Assumed office March 2020 – This committee reviews matters related to the appointment and Masahiko Ohji 15/15 meetings (100%) 13/13 meetings (100%) Full-time dismissal of representative directors and to the policies and Corporate 12/12 meetings (100%) 10/10 meetings (100%) Auditors Yoshihisa Hayashi (Since assuming office in (Since assuming office in systems governing how, and how much, directors are March 2019) March 2019) Katsuhiro Matsui 15/15 meetings (100%) 13/13 meetings (100%) remunerated, and it reports its conclusions to the Board of Outside Corporate 12/12 meetings (100%) 10/10 meetings (100%) Directors. The committee is comprised of the two representative Auditors Tsukasa Takahashi (Since assuming office in (Since assuming office in March 2019) March 2019) directors and three outside directors listed below.
Chair Shuichi Mori (outside director) Outside Directors and Corporate Auditors Masayuki Arioka (chairman of the board) Motoharu Matsumoto (president) As of March 27, 2020, there are three outside Directors and two Members Reiko Urade (outside director) outside Corporate Auditors within our company. Outside Hiroyuki Ito (outside director) Directors make up one-third of all Directors. In order to strengthen the management supervisory capabilities of the Board of Directors and other corporate administrative ▶ Management Committee bodies by ensuring that they receive informed and objective The Management Committee deliberates on our company’s advice, our outside director appointments include a corporate important managerial affairs and draws up detailed action management expert with many years of first-hand knowledge plans regarding the decisions made at the Board of Directors and experience in the world of corporate management; a meetings. Management Committee meetings are held twice a science expert who is specialized and highly experienced in month and when deemed necessary. As of March 27, 2020, the field of agricultural sciences; and an economist with the Management Committee is comprised of six inside expertise and a robust background in corporate governance directors (two of whom are representative directors) and four and organizational management. senior vice presidents. Outside Corporate Auditors consist of one certified accountant and tax accountant and one attorney at law, who are both ▶ Executive Officers independent from the company and are highly experienced in We adopt an executive officer system to promote faster their respective fields. They proactively perform their auditing decision making, ensure managerial transparency, and duties and reinforce supervisory functions. enhance the execution of business affairs. As of March 27, When hiring outside Directors and Corporate Auditors, we base 2020, there are eighteen Executive Officers (four of whom are our selection on whether candidates satisfy requirements set for Directors). The President is responsible for execution of duties independent directors/corporate auditors in accordance with and the other Executive Officers execute the duties assigned the Tokyo Stock Exchange’s rules and regulations. At the same to them by the President. Each Executive Officer serves for a time, we also take into account the importance of avoiding any term of one year. risks or conflicts of interest with our general shareholders.
Integrated Report 2019 27 We have registered all our outside executives as independent directors and corporate auditors receive only a monthly directors/corporate auditors with the Tokyo Stock Exchange. stipend. With regard to the monthly stipends and grants of restricted stock for directors, it is at the General Meeting of Shareholders Analysis and Evaluation of that the maximum amount for monthly or annual remuneration, the Effectiveness of the Board of Directors as well as the total amount for bonuses, is decided. With All of our Directors respond to an annual questionnaire to regard to remuneration for corporate auditors, the amount is investigate the effectiveness of the Board of Directors. The decided upon through discussion with the corporate auditors, questionnaire sent out in fiscal 2019 focused on (1) the Board based upon standard remuneration for auditors at other of Directors in general, (2) the running of Board of Directors companies, as determined by outside industry research, and meetings, and (3) outside directors. On the topic of receiving within the total remuneration approved at the General Meeting advance explanation of materials for Board of Directors of Shareholders. meetings and opportunities to talk with directors and executive In addition, on March 27, 2020 we established a Nomination officers in conjunction with corporate auditors, the results of the and Remuneration Advisory Committee, which will help ensure questionnaire suggest that, although these are extremely transparency and objectivity when determining the helpful in enabling outside directors to ascertain the condition remuneration of directors. More than half of the members of of the company, the way they are carried out could be this committee are outside directors, and it renders decisions improved, such as by providing materials for Board of based on a majority vote by the members in attendance. Directors meetings earlier. We found that the Board of The committee reviews director remuneration policies, Directors is viable and functioning effectively. We will continue systems, and amounts and reports its recommendations to the to conduct such surveys to rate the Board’s effectiveness and Board of Directors which, in turn, gives these ensure that deliberations are effectively conducted at Board of recommendations suitable consideration when rendering their Directors meetings. decisions. Total Amount of Directors’ and Corporate Auditors’ Training for Directors and Auditors Remuneration in Fiscal 2019 Total amount Total amount for each type of remuneration (millions of yen) Number of During Compliance Awareness Month, which is held in Category of remuneration Base Restricted eligible Board (millions of yen) stock-based Bonuses Members remuneration remuneration October of every year, we invite outside instructors to come Directors outside Directors 269 237 32 – 7 and give lectures on compliance to our executive directors, ( excluded ) Corporate Auditors full-time corporate auditors, and other executives. We also hold outside Corporate 39 39 – – 3 ()Auditors excluded director training seminars twice a year, which provide our Outside Directors and Corporate Auditors 29 29 – – 6 directors with a deeper understanding of current business conditions, including those surrounding corporate governance. Our corporate auditors participate in seminars and information Internal Control exchanges with outside organizations, through which they deepen their auditing-related expertise. Our internal control system is based on Japan’s Companies For our outside directors and outside corporate auditors, prior Act and utilizes basic policies decided upon by the Board of to assuming office, we provide them with explanations about Directors in order to build a system that ensures proper NEG’s current corporate situation and systems. After they have business operations. In addition, we have in place an internal assumed office, we provide them with opportunities to tour our control reporting system, which is based on the Financial production facilities and subsidiaries, both in Japan and Instruments and Exchange Act and which facilitates the overseas, and to conduct interviews with directors and development and operation of a system for ensuring proper executive officers. financial reporting. The condition of financial reporting-related internal controls is assessed by the internal control division Policy on Deciding Directors’ and (Auditing Division), which is under the direct control of the Corporate Auditors’ Remuneration president. In the Internal Control Report released in March 2020, NEG’s Remuneration for inside directors is comprised of a monthly financial reporting-related internal controls for fiscal 2019 were stipend, bonuses calculated based on company performance, assessed as “effective.” A report by an outside auditing and grants of restricted stock in order to incentivize directors’ company also assessed the controls as being appropriate in focus on medium-to-long-term corporate performance. Outside all key aspects.
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A Conversation with the Outside Directors
We sat down with NEG’s three outside directors to talk about corporate governance, future growth, and other challenges.
Outside director Former outside director (retired March 27, 2020) Outside director Shuichi Mori Sumimaru Odano Reiko Urade
Note: This conversation was conducted on February 20, 2020.
What perspectives or approaches have development of the acquisition strategy itself but, rather, you brought to your managerial role objectively check whether or not policy decision-making since being appointed as outside processes and procedures are being implemented properly. director? And in order to keep the board of directors from becoming a “group of friends,” an outside director must maintain an Odano: My specialization is in international economics, independent perspective when checking. Outside directors and I was the director of Shiga University’s Center for Risk must be able to tell the chairman and the president the Research where I studied questions of how to ascertain and unpleasant truths that those within the company cannot. I respond to risk, as well as how to be prepared for it. When risk believe that these are the major roles of an outside director. factors appear, it is important that you consider how to go about ascertaining, measuring, verifying, and handling risk Urade: It has been less than a year since my appointment; within the context of your capacity for information-gathering. however, in that time I have toured three of NEG’s business Such an outlook is essential for organizations faced with facilities in Japan and its plant in Malaysia. Although the particularly significant change. I certainly see that NEG is a environment at production sites is always harsh, I was company that takes its business seriously. However, in order to impressed with how much emphasis NEG places on creating a become the world’s leading manufacturer of special glass, safe, worker-friendly environment. At the same time I got a it is important to not just take business seriously but to also sense of the strength that undergirds NEG as a manufacturing cultivate a capacity for information-gathering and analysis company that supports society. Given my professional geared towards risk management. background, I focus heavily on how NEG is functioning in terms of research and development. My other focus is diversity. It is Mori: I have always asked myself how an outside director employees that make a company run. How employees work is should be. My conclusion, using M&A as an example, is that— important, and when their motivation, stress, and ambitions for because we are outsiders—we do not contribute to the the future are positive, the company also benefits.
Integrated Report 2019 29 Given the sociological research findings that show promoting Of course there is a free response section, but it would also be diversity is beneficial for corporate performance and a good idea to enable respondents to explain their reasons in improvement, it is essential that companies be proactive about more detail on each question. Take, for example, a question incorporating and capitalizing on diverse human resources. about whether or not the current nine-member size of the board of directors is appropriate. The answer to this will vary depending upon various factors, such as the size of the company and the societal demands put upon the company. If the question can be structured such that this sort of reasoning can accompany the “Good” and “Poor,” then I feel this would enable clearer answers to the question of effectiveness to be provided.
Urade: I agree with Mr. Odano. Important points can sometimes be found within the questions that are not asked.
Mori: I feel that, in the end, the effectiveness of corporate governance depends upon the ethical framework of those running the company. From an institutional standpoint, when What is your impression of NEG with management is running amok, who is there, ultimately, to stop regard to its provision of them? One method for combating this is to publicly institute operations-related information? term limits. Given the business it handles and its size, NEG is Mori: I feel that NEG is extremely transparent with its extremely efficient in terms of the number of directors it has. explanations. Prior to each meeting of the board of directors, However, if I had to suggest one thing, it would be to increase I am provided with materials relating to the topics for the number of directors by one in order to split the role of the discussion and with a one to two hour explanation. Thus, I am CFO. I feel that it is appropriate within the manufacturing sector able to prepare questions, which are pertinent to the meeting of a technologically oriented country like Japan for more than topics. In addition to this, I receive both the minutes from and half of NEG’s directors to also be executive officers. explanations of Management Committee meetings and other The targets of EGP2021 have been important meetings, and I have opportunities to hear revised. Moving forward, what challenges explanations from the heads of the departments. Leaving aside does NEG need to overcome in order to M&A and other proactive matters, I find NEG to be quite open enter the next stage of growth? with its business operations-related information. Odano: NEG is not mistaken in viewing China as a strategic Urade: When M&A come up as the topic for discussion market. So the question then becomes what sort of marketing I receive an explanation shortly beforehand, but I find that I do strategy it should pursue. not receive much explanation prior to that. I think it would be good to provide a bit more information at the preliminary stage Mori: I feel that the largest challenge for future growth is of deliberation as well. figuring out how to develop a third business pillar after display
Odano: There is a phenomenon known as information asymmetry. This occurs when the people running a company know the most about the company while the shareholders know comparatively less. One of the roles of outside directors is to bridge the gap between these two. What do you think about how the effectiveness of the board of directors is evaluated and about the governance structure in general?
Odano: The evaluation questionnaire asks us to choose between “Good” and “Poor” without any intermediate options.
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Employees can be divided into “farmers” and “hunters.” The farmers are the honor students, while the hunters are the bad boy types. It is the hunters who come up with the breakthroughs. If a company does not have the patience and tolerance for these employees, no new work will be produced. Thus, it is important to focus on human resource development and on keeping an environment where employees feel free to speak their mind.
Urade: Human resource development is absolutely essential to research and development as well. It is important to give ongoing responsibilities and discretionary authority to employees. Without these two elements, it is difficult to glass and glass fiber. NEG also needs to further grow its cultivate creativity. Also, given the nature of the industry, it has capacity for developing applications and for marketing that been difficult to hire women in past eras, and, in terms of capitalize on its biggest technological strength. I would like to diversity, it still feels like there is much work to be done. see NEG overcome its weakness by publicizing its technology Attempts to cultivate more female employees are complicated more and actively pursuing technical cooperation with different by the limited total number of female employees available. I industries. feel that it is essential to cultivate a large number female employees as soon as possible who can serve as role models Urade: The manufacturing industry cannot escape the fact that for other female employees. its sales are fundamentally affected by economic and market trends. So what should a manufacturing company do when the Odano: There are some difficult aspects of EGP2021, but wind is against it? I think it is important for such companies to when I think of the countless times in the past when NEG has ensure their corporate vitality by concentrating on quality, faced and overcome crises, I feel confident that it will find price, production efficiency, and sales strength in order to some sort of opening through which to make inroads into the AI boost their market presence. and 5G era. Looking from the long-term perspective of 10 to 15 years from now, I foresee further expansion and development. Mori: In terms of human resources, how engaged do And I expect that NEG will continue to grow into the future. employees feel on an individual level with their jobs?
Integrated Report 2019 31 Directors, Corporate Auditors, Executive Officers
(As of March 27, 2020)
Directors
Chairman of the Board President Director and (Representative (Representative Director) Executive Vice President Director) Motoharu Hirokazu Masayuki Matsumoto Takeuchi Arioka [Auditing] (Research & Development, Process Development & Engineering, Electronic Products Business)
Apr. 1978 Joined Nippon Electric Glass Apr. 1982 Joined Nippon Electric Glass Apr. 1982 Joined Nippon Electric Glass Mar. 1997 Appointed as General Manager of Glass Jun. 2003 Appointed as CEO of Techneglass Inc. Apr. 2010 Appointed as Vice President and Fiber Division, Production Feb. 2005 Appointed as General Manager of Group General Manager of Electronic Jun. 1999 Appointed as Director (incumbent) Accounting Division Products Group Jun. 2002 Appointed as Vice President Apr. 2007 Appointed as Vice President Jun. 2013 Appointed as Director (incumbent) and Jun. 2004 Appointed as Senior Vice President Jun. 2011 Appointed as Director (incumbent) and Senior Vice President Apr. 2008 Appointed as Executive Vice President Senior Vice President Jan. 2017 Appointed as Executive Vice President Jun. 2009 Appointed as President Apr. 2013 Appointed as Executive Vice President (incumbent) Mar. 2015 Appointed as Chairman of the Board Mar. 2015 Appointed as President (incumbent) Jan. 2019 Appointed as Group General Manager of (incumbent) Research & Development Group (incumbent)
Director and Director and Director and Senior Vice President Senior Vice President Senior Vice President Akihisa Koichi Hiroki Saeki Tsuda Yamazaki (Display Glass Business, (Administration, Human [Fundamental Technology, Thin Film Business) Resources, Accounting, Intellectual Property, Purchasing, Sales Environmental Management, Management) Quality Auditing, [Corporate Strategy, Product Safety Management, Information Systems, Cooperation in Research & Tokyo Branch Office, Technology] Security Trade Control]
Apr. 1982 Joined Nippon Electric Glass Apr. 1982 Joined Nippon Electric Glass Apr. 1984 Joined Nippon Electric Glass Apr. 2012 Appointed as Vice President and General Apr. 2011 Appointed as Vice President and General Oct. 2006 Appointed as General Manager of Manager of LCD Glass Division, Production Manager of Administrative Division Technical Division Oct. 2013 Appointed as General Manager of Display Mar. 2015 Appointed as Director (incumbent) and Apr. 2011 Appointed as Vice President Glass Division, Production Senior Vice President (incumbent) Jan. 2016 Appointed as Group General Manager of Jun. 2014 Appointed as Director (incumbent) and Corporate Technology Group Senior Vice President (incumbent) Mar. 2016 Appointed as Director (incumbent) and Mar. 2015 Appointed as Group General Manager of Senior Vice President (incumbent) Display Glass Group (incumbent)
Outside Director Outside Director Outside Director (Independent Director) (Independent Director) (Independent Director) Shuichi Reiko Hiroyuki Mori Urade Ito
Apr. 1972 Joined Sumitomo Corporation Apr. 2010 Became Professor, Graduate School of Apr. 1992 Became research associate, Faculty of Jun. 2008 Appointed as Executive Vice President Agriculture, Kyoto University Economics, Shiga University (Representative Director) of Sumitomo Apr. 2018 Became Emeritus Professor, Kyoto Apr. 2009 Became Professor, Faculty of Economics, Mar. 2011 Left Sumitomo University (incumbent) and Research Shiga University (incumbent) Mar. 2011 Appointed as President (Representative Professor, Institute for Integrated Radiation Mar. 2020 Appointed as outside Director of Nippon Director) of Jupiter Telecommunications and Nuclear Science, Kyoto University Electric Glass (incumbent) Co., Ltd. (incumbent) Jan. 2014 Appointed as Chairman (Representative Mar. 2019 Appointed as outside Director of Nippon Director) of Jupiter Telecommunications Electric Glass (incumbent) Jun. 2015 Left Jupiter Telecommunications Mar. 2016 Appointed as outside Director of Nippon Electric Glass (incumbent) Jun. 2017 Appointed as outside Director of Tokai Cable Network (incumbent) Note: ( ) means “supervising” and [ ] means “in charge” indicating work assignments of executive officers.
32 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Corporate Auditors
Full-time Full-time Masahiko Yoshihisa Ohji Hayashi
Apr. 1982 Joined Nippon Electric Glass Apr. 1986 Joined Nippon Electric Glass Oct. 2010 Appointed as General Manager of Mar. 2015 Appointed as General Manager of Development Division Administrative Division Jan. 2015 Appointed as Special Assistant to Mar. 2019 Appointed as full-time Corporate President Auditor (incumbent) Mar. 2015 Appointed as full-time Corporate Auditor (incumbent)
Outside (Independent Outside (Independent Corporate Auditor) Corporate Auditor) Katsuhiro Tsukasa Matsui Takahashi
Oct. 1990 Joined Showa Ota Audit Corporation (now Apr. 1989 Registered as attorney at law and joined Ernst & Young ShinNihon LLC) Katsube Law Office (now Katsube Aug. 1994 Registered as certified public accountant Takahashi Law Office) Oct. 2010 Left Ernst & Young ShinNihon Jul. 2012 Became Representative of Katsube Nov. 2010 Registered as certified tax accountant, Takahashi Law Office (incumbent) established Matsui-jicpa (incumbent) May 2013 Appointed as outside Corporate Auditor May 2011 Became Representative Partner of Sakura of Aeon Delight Co., Ltd. (incumbent) Horwath LLC (incumbent) Mar. 2019 Appointed as outside Corporate Auditor Mar. 2018 Appointed as outside Corporate Auditor of Nippon Electric Glass (incumbent) of Nippon Electric Glass (incumbent)
Executive Officers
Senior Vice Presidents Akira Kishimoto Norio Nakamura Haruki Matsumiya Tomonori Kano [Consumer Glass Products Business] [Glass Fiber Business] [Process Development & Engineering] [Display Glass Business, Thin Film Business]
Vice Presidents Hiroaki Nomura Masaya Kubo Masaaki Kadomi Mamoru Morii [Glass Fiber Business (Sales); [Nippon Electric Glass (Malaysia) Sdn. Bhd.] [Research & Development] [Accounting, Purchasing] Electric Glass Fiber America, LLC]
Masashi Takahata Takuo Horiuchi Masahiro Kobayashi Hitoshi Kanaya [Consumer Glass Products Business [Display Glass Business (Sales)] [Electronic Products Business] [Process Development & Engineering] (Sales), Sales Management] Toshiyuki Nakajima Hidetaka Oda [Administration, Human Resources] [Display Glass Business (Production)]
Integrated Report 2019 33 Governance Compliance and Risk Management
To maintain public trust and to achieve sustainable growth, every employee and executive of our group is expected to comply with laws and international rules, and consistently act in accordance with our organization’s high ethical standards.
▶ Internal Whistleblowing System Compliance System An internal whistleblowing system called NEG Hotline has been We have a compliance committee, a specialized organization installed. Its purpose is to prevent any illegal violations, that makes sure all of our group employees are informed to wrongdoings, or unethical acts and to promote early detection ensure their compliance with laws and corporate ethical and quick resolution should such acts occur. We have standards. The committee is responsible for the following established two consultation hotlines, one that connects activities: employees to the compliance committee (internal contact point) and another that connects to an attorney’s office (outside
● Drafting revisions to the Group Code of Conduct contact point). The confidentiality of the informants is strictly and Principle of Activities protected at both contact points, so that no unfair treatment will ● Collecting and analyzing information on compliance occur. and providing compliance training ● Managing an internal whistleblowing system This whistleblowing system has also been set up at most of our (NEG Hotline) overseas subsidiaries and we are currently working to have it at all NEG group companies in the future.
Compliance Program
▶ Group Code of Conduct and Principle of Activities
To ensure that all employees are informed on compliance matters, we have established the Group Code of Conduct and Principle of Activities. Wallet-sized cards printed with the Corporate Philosophy Structure, Code of Conduct, Principle of Activities, and an introduction to the NEG Hotline are distributed to employees of group companies in Japan.
Poster for Compliance Awareness Month
▶ Ensuring Compliance To raise compliance awareness (for example, for high ethical standards and respect for human rights) throughout our group, each year we carry out compliance training as a part of an education program for newly hired employees and antitrust seminars for employees engaged in sales activities. We also ensure awareness among management by holding workshops for directors and executive officers. At these sessions, participants take the opportunity to discuss themes such as governance and compliance.
34 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
In addition, we have designated October as the month for strengthening compliance. We conduct compliance-related lectures and workshops throughout our group companies both in Japan and overseas, and also put up compliance awareness posters throughout our facilities. Moreover, we ask all executives and employees in Japan and overseas to provide us with signed declarations each year promising that they will abide by the Principle of Activities. This gives them the opportunity to reflect on how they carry out their work in terms of compliance. Compliance lecture at the Otsu Plant
Thanks to these efforts, no affairs subject to legal actions, such as bribery, anticompetitive acts, or other violations occurred in fiscal 2019.
Antitrust seminar in Osaka
Compliance Education, Workshops, and Lectures Held in Fiscal 2019 No. of No. of Name Intended Persons Times Participants Themes ● Corporate Philosophy, Group Code of Conduct, Principle of Activities Education for ● What is compliance? All new employees new employees 2 42 ● Antitrust laws ● Internal whistleblowing system ● Case studies, etc.
Managers at our company ● Necessity of compliance and domestic subsidiaries Workshop ● Compliance violations and (Participants shall inform other 4 119 countermeasures employees in their workplace of the Japan content.) ● Internal whistleblowing system, etc. Executives and general managers at our company, Lecture 1 61 ● Innovation-focused antitrust legal representatives of domestic compliance subsidiaries, district managers Antitrust laws Antitrust seminar Employees of our company ● Current status and cases for sales 1 34 engaged in sales activities in each country departments ● Case studies
● Corporate Philosophy, Group Code of Managers at subsidiaries Conduct, Principle of Activities Overseas Workshop in the U.S., Europe, and 10 325 ● Falsification of quality Malaysia ● Antitrust laws ● Bribery, etc.
Integrated Report 2019 35 employees and their families in case of an emergency. Import/Export Control Initiatives Moreover, in order to resume production and continue to NEG has established a Trade Control Committee as part of supply our customers in the aftermath of a disaster, we are efforts to ensure thorough implementation of export controls working to strengthen our risk management system of and compliance with various export-related legal requirements, procurement. such as the Foreign Exchange and Foreign Trade Act. Among other things, the Trade Control Committee scrutinizes the At the BCP response training held in November 2019, we implementation of export control procedures, facilitates Foreign utilized an anticipated disaster scenario involving serious Exchange and Foreign Trade Act-related training, and damage that hampers a quick recovery and, based on this, develops internal rules and regulations. carried out simulated strategic business continuation-related decision-making, from which various obstacles to recovery Also, in order to ensure appropriate compliance with were identified. import/export customs procedures and tax reporting, NEG has established the Specified Export Declaration Office and ▶ Basic Policy of BCP Special Import Declaration Office to facilitate the ❶ To protect each employee and their families and implementation of trade-related business according to the to secure their safety. requirements of the Customs Act and other tariff-related laws. ❷ To protect production equipment, to prevent the spread of damage as well as secondary disasters from occurring As part of their efforts to ensure thorough compliance and within the company and the adjacent communities, greater awareness, both of these offices conduct regular and to help with rescue efforts. Group-wide auditing and employee training. ❸ To resume providing customers with products and services as rapidly as possible. These and other initiatives have earned NEG certification as an Authorized Economic Operator (AEO) by Kobe Customs for ▶ BCP Activation Structure both exports and imports. This is a status conferred on those Head Office Disaster Response Area Branch Disaster Response Task Force economic operators that have well-developed cargo security Task Force (for 6 bases in Japan) controls and legal compliance structures in place. (Roles) Head Office: Implement basic policy and decision-making for general disaster response Branches : Facilitate disaster response while coordinating closely with the Head Office Thanks to this, not only NEG but also its overseas subsidiaries Structure of Head Office Disaster Response Task Force are conferred AEO mutual recognition, thereby expediting Task Force Director Task Force Deputy Director General Affairs Manager smoother import/export customs procedures. In addition, NEG is (President) (front-line command) the only Japanese glass manufacturer to be certified as an AEO Personnel Manager
for both imports and exports. (Current as of February 19, 2020.) Accounting Manager
Procurement Manager Implementing BCP Task Force Deputy Director IT Systems Manager (logistical support) To be prepared for disasters such as earthquakes, typhoons, Facilities Manager floods, fires, and mass infections, we created a disaster Equipment Manager management manual based on the company’s disaster preparedness regulations, and we carry out emergency drills Environmental Manager
periodically. In the wake of the 2011 Great East Japan Sales Manager
Earthquake, we reviewed our disaster management measures Secretariat and implemented seismic reinforcement to our buildings, production facilities, and equipment.
In 2015, we began using Business Continuity Planning (BCP), which replaced the previous disaster preparedness regulations. To facilitate the processes necessary for BCP, a manual providing information on detailed preparation procedures and actions that should be taken when an emergency or disaster strikes was created. In accordance with the implementation of BCP, we have also introduced a system that will efficiently confirm the whereabouts of all domestic BCP response training
36 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Risk Management
Our group reviews business risks on a periodic basis, based on our policy on internal control, and takes the necessary steps to manage such risks. In cases involving any business risks that are deemed significant, responsible divisions or specialized committees formulate regulations and guidelines, conduct training, prepare manuals, and undertake additional activities as deemed necessary.
Business Risks Risk Description Response Contracted demand for existing products due to ① Speed up R&D, respond to new needs Drastic changes in demand technological innovation, or fluctuation of price or through aggressive sales. and market structure supply of products due to intensified competition.
Significant change in demand forecast, shortage of When and however necessary, build new ② Capital expenditure risks plant capacity, sudden change in price of major production facilities and continuously equipment or materials. upgrade them.
③ Risks related to certain Change in investment or sales plan or material Diversify our customer base. products procurement policy of our major customers.
④ Risks related to procurement Tight supply or delay of special raw materials or Maintain good relations with suppliers, find new materials whose suppliers are limited, or escalating suppliers, increase the number of suppliers, of materials and other items price of such materials. and switch to general-purpose materials.
Comply with laws and regulations, survey ⑤ Violation of the laws or regulations of the country or Risks related to legal changes in legal revisions, and hold periodic region where we operate. restrictions in-house education and audits.
Obtain intellectual property rights useful for ⑥ Risks related to intellectual business, survey and monitor other companies’ A litigation related to intellectual property rights. intellectual property rights, develop alternative property rights technologies, and take over or license intellectual property from other companies.
Develop environmentally friendly products, A shift to stricter environmental regulations, or more ensure that facilities and management systems ⑦ Environmental risks corporate responsibilities related to the environment exert minimal impact on the environment, raise demanded by society. production efficiency, and practice the 3Rs (reduce, reuse, recycle).
Utilize forward exchange contracts, properly ⑧ Change in exchange or securities market, or interest Risks related to fluctuations manage interest-bearing debt, and carry out rate environment. in exchange and interest rates interest rate swap transactions.
Unanticipated change in laws or regulations, ⑨ Risks related to overseas Facilitate close communication between international tax risk, particular trade practices, overseas subsidiaries and local authorities, business operations change in political or social conditions, social turmoil and get advice from experts. due to terrorism or war, or others.
Aggressively hire and train a diverse range of ⑩ Securing human resources Difficulty in securing human resources appropriate people; secure an optimal, effective workforce for future business; various labor-related compliance that matches our efforts to save labor through and related business risks violations. automation; ensure legal and regulatory compliance and provide relevant training.
Conduct capital expenditure aimed at Occurrence of impairment loss of fixed assets due to ⑪ Impairment accounting profitability and recouping investment; the impact of business profitability or market trends. for fixed assets reorganize, sell, or transfer idle fixed assets.
A filed claim for damages due to the leak of confidential information, which our group obtained in Establish an Information Management ⑫ Risks related to information the course of business; tarnished corporate reputation Committee, utilize security systems, hold management due to such problems; a decline in competitiveness in-house education, and comply with the EU’s due to a leak of information on newly developed GDPR (General Data Protection Regulation). technology; or cyber attacks on IT systems.
Delay of production or shipment caused by natural Implement a BCP, seismically reinforce ⑬ Risks related to natural disasters (such as earthquakes or typhoons), buildings, implement disaster preparedness accidents (such as fires), or manpower shortages measures, takes measures to prevent virus disasters and accidents resulting from the spread of infectious diseases; infections, and disperse duties among repair costs for associated damage to facilities. manufacturing sites.
Integrated Report 2019 37 CSR Foundation
We will contribute to realizing a sustainable society by working on three priority themes: the Environment, Diversity and Inclusion, and Community Contribution.
The History and Themes Our Fundamental Way of Thinking of Our CSR Activities Regarding CSR
Our work on pollution problems at our Fujisawa Plant in the CSR is a key area in our corporate activities and cannot exist early 1970s taught us to undertake environmental conservation separate from our corporate philosophy structure. Accordingly, as an issue crucial to the sustainability of our operations. we carry out our CSR activities in accordance with the intention A particular characteristic of special glass manufacturers is of our corporate philosophy structure and, through the the consumption of large amounts of energy and resources, implementation of CSR activities, we aim to raise our corporate and the emission of carbon dioxide. Accordingly, value and realize a sustainable society. We have established environmental conservation continues to be an issue of the both of these approaches as our fundamental way of thinking upmost importance for our group. At the same time, we have in regard to CSR. engaged in contribution to the community mainly by assisting with the education of local human resources and through Our Way of Thinking on CSR active involvement in employment of the disabled. We promote CSR with our corporate philosophy Based on this historical background, and in order to further structure as the basic principles. Through our CSR advance our CSR activities, the Management Committee in activities we will raise our corporate value and which our top management participates has established a realize a sustainable society. “way of thinking” that forms the foundation of these activities, which we have set forth in our CSR priority themes.
Three Priority Themes
We have established the Environment, Diversity and Inclusion, and Community Contribution as the three priority themes of our CSR. These themes have a strong association with the priority issues that we have focused on so far (environmental conservation, community contribution, employment of the disabled). We have reconfirmed the background and importance of these three themes and have clarified the future direction for scaling up our initiatives on a broader scale. In addition, we will place emphasis on these themes, as we believe they are directly linked to the United Nations’ Sustainable Development Goals (SDGs).
Environment Diversity and Inclusion Community Contribution
Environmental conservation is a duty The basis of our thinking on Diversity A good relationship with the for a company like ours whose and Inclusion is that the integrated community is essential for operations incur a high strength of personnel with diverse sustainable business. Therefore, we environmental burden, so we backgrounds and values—whether in believe it is important to engage with terms of gender, race, or so on—is advocate “consideration for the local communities to gain their trust the driving force behind corporate environment” and “efficient and appreciation. We will continue to growth. Of course, employment of manufacturing processes lead to actively participate in local activities, the disabled is also included in this environment-friendly manufacturing.” and also provide support for the theme. At the same time, we will do Furthermore, we maintain the attitude disadvantaged and for human our utmost for all these employees by that it is unthinkable for our providing personnel training and resource development in the operational activities to not include maintaining a safe and healthy communities we serve. environmental conservation activities. working environment for them.
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The Basic Policy of Our Priority Themes
In order to further clarify the direction of our CSR activities, we have determined a basic policy for each of our priority themes. Furthermore, we have identified corporate governance as what supports the nucleus of CSR and are positioning and developing it within the framework of our CSR.
EnvironmentDiversity and Inclusion Community Contribution
● Consideration for the environment ● A work environment in which diverse ● Community-based activities personnel can flourish ● Reduction of the environmental ● Sustainable activities burden caused by our operations ● Health and safety activities based on ● Activities that contribute health and productivity management ● Conservation of the global to community development environment and the realization ● Continuous development of human of a recycling-oriented society resources
Relevant SDGs Relevant SDGs Relevant SDGs
Corporate Governance We aim to enhance corporate governance that supports the nucleus of our CSR
● Ensure transparency of management Strengthening ● Reinforce the functions of our Board Improvement ● Promote communication with of Corporate of Directors of Information stakeholders Governance ● Strengthen our compliance management Disclosure ● Fair and timely disclosure ● Risk management
Relevant SDGs
We have put into writing our way of thinking on CSR and what our three priority themes are. We are actively pursuing CSR activities focused on departments central to each priority theme, i.e., the Environmental Management Division, Human Resources Division, Administrative Division, and Fundamental Technology Division. Through activities like these, we are contributing to the realization of a sustainable society and the improvement of our corporate value.
Integrated Report 2019 39 Environment
With “Consideration for the environment” as one of our key values, we will continue to manufacture products in an environmentally friendly way.
Our Way of Thinking on Environmental Conservation
We hold consideration for the environment as an important value and have always been conscious of environmental conservation through our operations. Furthermore, we have managed our business based on the belief that practicing the world’s most efficient manufacturing process is, in fact, the key to realizing the world’s most environment-friendly manufacturing. Against this backdrop, we endeavor to not only reduce our environmental footprint but also tackle various issues, including sustainable development and conservation of biodiversity.
The Environmental Charter is our fundamental policy on the environment and sets forth the direction we need to follow in enacting our initiatives for environmental conservation. In accordance with our Environmental Charter, through our glass business, and together with our group companies, we will continue to be instrumental in preserving the global environment and realizing a recycling-oriented society. Motoharu Matsumoto, President
Environmental Charter Environmental Principles Preservation of the global environment is extremely important and indispensable for the prosperity of civilization and humanity in the 21st century. Nippon Electric Glass, upholding the Corporate Philosophy of “To build a brighter future for the world by uncovering the unlimited possibilities of glass for more advanced creative manufacturing” and adhering to “Consideration for the environment” as one of its essential corporate values, strives to be and remain the world’s leading manufacturer of special glass by ensuring the state-of-the-art technological development, the highest quality standards, efficient production, and steady product supply. Nippon Electric Glass and its group companies are committed to contributing to the preservation of the global environment and realization of a recycling-based society by adopting high-efficiency and environmentally responsible processes.
1. We will honor and observe all environment-related laws and regulations and the environment-related agreements and conventions that we have signed, and establish and enforce our own and voluntary environmental restrictions. 2. We will endeavor to reduce our environmental impact in all aspects of our corporate activities and in all stages of the
Action Plan product life cycle, including procurement, manufacturing, transportation, sales, use, reuse, treatment, and disposal. 3. We will attain the world’s highest-level manufacturing to more effectively utilize natural resources and energy sources, thereby contributing to preservation of biodiversity and reduction of greenhouse gas emissions. 4. We will strive to adapt our activities to the requirements of 21st-century society to prevent pollution, thereby optimizing our presence in society. 5. We will set environmental objectives and targets and attain them through optimization of our essential operations and environmental protection activities in which all employees participate. We will also continuously improve our environmental management system to enhance our environmental protection performance.
This Charter is informed to all employees and affiliated companies, and is made available to parties outside the Company at their request.
40 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Environmental Management Activity Organization Chart Promoting the Environmental Management Plan President Executive Officer in Charge In fiscal 2019, in order to improve environmental performance, of Environmental Management all domestic plants set 36 objectives, of which 29 were Environmental Management attained. A total of 41 objectives have been set for fiscal 2020. Meeting The topics we are working on are directly connected to Environmental Management Manager pressing issues and issues directly connected with our core business. Environmental Management Environmental Management Managers Meeting Personnel Meeting
ISO 14001 Certification Status Internal Environmental Auditing Committee ▶ Adapting to New ISO 14001:2015 Standards The international environmental standard ISO 14001 was Otsu Plant Shiga-Takatsuki Notogawa Plant Precision Glass Plant Center revised in 2015 in order to ensure the efficacy of ISO application. From January 2017 we implemented a new Environmental Management Meeting Environmental Management System (EMS), which incorporates The executive officer in charge of environmental management the new standard and, after undergoing the auditing process, serves as chair, and the President and representatives of each we received accreditation renewal in August 2017. In 2020 we operational department attend this meeting. Representatives are scheduled to undergo our first renewal audit under the new from overseas subsidiaries also participate as necessary. standard. We are working to put in place a better Specific environmental conservation activities based on the environmental management system by implementing a PDCA President’s environmental policies, performance reports, and (Plan, Do, Check, Action) cycle. promotion updates are shared. Deliberation on our group’s environmental conservation activities is carried out at this ISO 14001 Certification Status of Our Group meeting.
Company name Date of certification Nippon Electric Glass Co., Ltd. Environmental Education Aug. 27, 1999 (multi-certification at four plants) As environment-related laws are revised and regulations are Group companies Date of certification strengthened, it is necessary to accurately ascertain those Japan changes in order to ensure legal compliance. In fiscal 2019 we SGS Engineering Co., Ltd. Jan. 19, 2001 invited outside instructors to provide focused training to those Nichiden Glass Processing Company, Limited Nov. 1, 2002 employees who actually deal with environmental law-related Shiga Nichiman Company, Limited Feb. 15, 2013 issues in their day-to-day work. Overseas Techneglas LLC Jan. 31, 2000 Nippon Electric Glass (Malaysia) Sdn. Bhd. Jan. 12, 2002 Environmental Management Logo Nippon Electric Glass Taiwan Co., Ltd. Sep. 18, 2006 This logo was created in June 1993 and Paju Electric Glass Co., Ltd. Aug. 28, 2007 it is used when making internal postings Nippon Electric Glass (Korea) Co., Ltd. Oct. 9, 2007 about our EMS activities and Electric Glass (Shanghai) Co., Ltd. Dec. 21, 2009 Environmental Charter. The design was Electric Glass (Korea) Co., Ltd. Dec. 9, 2014 selected from among internal suggestions. The green leaves Electric Glass (Guangzhou) Co., Ltd. Nov. 11, 2015 represent environmental technology, nature, and the hands of our employees, while the blue circle depicts the sky and Electric Glass (Xiamen) Co., Ltd. Apr. 17, 2017 the earth, environmental equipment made by our employees, Electric Glass Fiber NL, B.V. May 22, 2017 and the community and society surrounding us. Electric Glass (Nanjing) Co., Ltd Apr. 13, 2018
Integrated Report 2019 41 With regard to bulky construction waste requiring landfill disposal Environmental Business Plan (Landfill Waste D), the majority of this waste is generated from Our environmental business plan is an original activity that glass melting furnace repairs and is comprised of unrecyclable applies our operational management approach to waste brick. In 2017, we put in place a mechanism for shifting environmental conservation activities. Waste, water, and this waste to Social Recycling B by having a refractory exhaust gas are the main themes of the plan, under which we manufacturer use waste chromium (Cr) bricks and zirconium (Zr) work to reduce the environmental footprint that results from our bricks as raw materials. This has also contributed to a significant glass production operations. reduction in landfill waste disposal expenses associated with Cr ▶ Waste Reduction bricks, which have a particularly large environmental impact. As part of our waste reduction efforts begun in 2000, we separate ▶ Water Reduction waste into two categories: “normal waste,” comprised of waste We believe that the level of manufacturing is represented in the generated by our normal production activities, and “bulky way water is used. Consequently, by managing our water construction waste,” comprised of waste generated by such usage we are increasing our understanding of the entire glass activities as regular maintenance of glass melting furnaces. These manufacturing process, including melting, forming, processing waste categories are further separated into the four subcategories and cleaning, and further improving our process technology shown below, with “Landfill Waste D” being our highest waste and equipment. This graph shows the change over time in reduction priority due to its high environmental impact. water intake and waste water per total weight of products sold.
Waste Categories Although intensity increased after fiscal 2004 due to the rapid switchover from CRT to LCD, there has been an ongoing Internal Recycling A Small decline in intensity since fiscal 2014 thanks to efforts to Spent polishing agents, glass shards, and other materials useful in-house as recycled raw materials increase utilization efficiency within the LCD business.
Environmental impact Water Intake/Waste Water per Total Weight of Products Sold Social Recycling B (m3/t) Scrap metal, scrap bricks, waste paper, 20.0 Generation scrap plastic (recycled), and other materials, Water intake Waste water which have value externally as reusable materials 15.0 Release Corporate Recycling C 9.1 10.0 Scrap plastic (converted to fuel), waste oil, wood scrap, and other materials, which NEG pays 5.0 to have recycled outside the company 4.9 Landfill Waste D 0 00 05 10 15 16 17 18 19 Incombustible materials, incinerated ash, waste refractories, and other materials, which NEG pays Large Water Flow to have disposed of in landfills Water into NEG Water used/reused in-house Water out of NEG
Polishing, grinding, cleaning; With regard to normal waste requiring landfill disposal (Landfill equipment and AC cooling water; domestic water River discharge, (cafeterias, baths, toilets) public sewer discharge Waste D), our ongoing efforts since 2009 to minimize and Well water, tap water, industrial water, recycle what we generate on a daily basis have reduced the rainwater, spring water Treated water Used water Evaporated water, percentage of this waste per total weight of products sold to Water treatment landscaping water, etc. 0.1% or less. On the other hand, however, as a result of glass Reducing Evaporated Glass Components fiber business acquisitions in the U.K., Netherlands, and the ▶ in Glass Melting Furnaces U.S .in 2016 and 2017, the amount of normal waste that the NEG Group produces has increased dramatically. Moving The exhaust gas from melting furnaces contains evaporated forward, we will continue to strengthen our efforts overseas to components derived from the raw materials of glass production. These evaporated reduce the amount of normal waste we generate. Glass Production Raw Material components can be recycled Utilization Smokestack Normal Waste (Landfill Waste D) per Total Weight of Products Sold if captured. By combining the (%) Some to Recovery Electrostatic 8.0 reduction of evaporation from landfill (recycling) precipitator NEG 6.7 Consolidated melting furnaces and efficient Evaporation, 6.0 etc. capture of the evaporated 4.0 components, we are applying Glass raw Glass material product 2.0 best practices to improve our Input Forming 0.02 melting process and energy 0 conservation technology. Glass melting furnace 00 05 10 15 16 17 18 19
42 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Our Global Warming Countermeasures
A significant amount of energy is used to melt glass. Therefore, we consider it our duty to further improve the energy efficiency of our melting furnaces.
▶ Oxy-fuel Firing Glass Melting Furnaces ▶ Increasing Electricity Usage in the Glass Compared to air combustion furnaces, oxy-fuel firing furnaces Melting Process remove more excess nitrogen. This has reduced the amount of In the melting process, both gas and electricity are used. In exhaust gas (exhaust heat) and consequently lowered fuel and electric heating, unlike that using gas fuel, electrodes are energy consumption. It has also reduced emissions of CO2 and directly inserted into the molten glass, resulting in excellent thermal nitrogen oxides (NOx). thermal conductivity of the glass. Also, in heating with electricity, the amount of exhaust gas and exhaust heat can be reduced In 1993, we installed the first oxy-fuel firing glass melting compared with that generated by heating with fossil fuels. Thus, furnace in Japan. This technology has now been installed in if electricity usage is increased in percentage terms, energy almost all of our furnaces. savings and reductions in CO2 emissions can be achieved.
Percentage of Oxy-fuel Firing Furnaces among All Melting Furnaces We are continuing with group-wide activities aimed at (%) increasing electricity as an energy source used to melt glass. 100 96.6 Electricity Usage 80 (%) 100 60 36.0 80
40 Electricity 60 Fossil fuels 20 40 64.0 20 0 95 00 05 10 15 16 17 18 19 0 00 05 10 15 16 17 18 19
Fuel Conversion Fuel Conversion in Glass Melting Furnaces (%) ▶ 100 We have been switching to fuels with less environmental Heavy oil 80 Kerosene impact to operate our glass melting furnaces. We have LPG 60 switched from heavy oil to LPG and ultimately to natural gas Natural 99.8 gas, city gas and city gas, thus reducing CO2 emissions. 40
20 0.2 0 00 05 10 15 16 17 18 19
Protecting Biodiversity
As a way to demonstrate corporate social responsibility, we have an obligation to contribute to society, such as by protecting the environment through business activities. In addition to our existing efforts to reduce greenhouse gas emissions, we pursue other environmental conservation initiatives. These include contributing financial and volunteer support since 2018 to a local forestry cooperative focused on conserving Lake Biwa’s surrounding forests as abundant water resources, which protect the area’s biodiversity. Additionally, we participate in efforts to eradicate non-native fish species that threaten Lake Biwa’s ecosystem.
In recognition of our efforts to protect biodiversity and promote sustainable usage of natural resources, NEG was awarded three stars—the highest possible rating—from Shiga Prefecture in the 2018 Shiga Biodiversity Awards. We will continue to pursue a diverse range of activities The Mokumoku River, flowing through through which we can realize our commitment to protecting biodiversity. the site of the Notogawa Plant since its opening
Integrated Report 2019 43 Analysis of Environmental Impact (fiscal 2019 consolidated basis)
INPUT OUTPUT
Total energy 6,920,000 MWh* CO2 2,410,000 tons Energy Electricity 2,490,000 MWh* SOｘ 266 tons consumption Atmosphere Fuel 4,430,000 MWh* NOｘ 3,320 tons Particulate matter 240 tons Water Water intake 8,630,000 m3 Water Waste water 5,670,000 m3 *The measurement unit for “Energy consumption” has been changed from TJ to MWh. Total emissions 121,000 tons Waste Recycling (Category B+C) 47,300 tons Landfill waste (Category D) 73,700 tons
Environmental Accounting (NEG)
(Millions of yen) 2018 2019 Category Main Activities 2018.1.1–2018.12.31 2019.1.1–2019.12.31 Investment Expenses Investment Expenses 74 4,366 67 4,320
Costs to reduce Breakdown （1）Costs within environmental footprint of ① Anti-pollution maintenance and management costs 67 571 53 862 operational area production activities within ② Global environmental conservation costs 6 1,779 13 1,781 operational area ③ Resource recycling costs 1 2,016 – 1,677
Costs to reduce Costs for green procurement, product recycling, （2）Upstream and environmental footprint of container and packaging recycling, – 297 – 213 downstream costs upstream and downstream environmental conservation measures production activities Costs for environmental education, ISO 14001 （3）Costs of Environmental conservation system construction and maintenance, and management costs within management measuring of environmental footprint; labor costs 2 689 – 873 activities activities of environmental managers Expenses related to the development of （4）Research and environmentally friendly products, expenses development Environmental conservation costs of R&D activities related to production technology designed to 17 605 101 222 costs reduce environmental impact Beautification and tree-planting activities for harmonious coexistence with local communities, （5）Costs for social Environmental conservation – 136 – 94 initiatives costs of social initiatives support for local communities, environment-related advertising costs, afforestation 6 Environmental （ ） Costs to deal with damage Environmental restoration expenses remediation costs to the environment – 42 – 184 Other costs relating to 7 Other costs Expenses for dismantling and removal of ( ） environmental conservation environment-related equipment and facilities –1790 105 Total 93 6,152 258 6,011 Note : Regarding expenses and investment, only costs clearly arising directly from environmental concerns have been aggregated. In regard to production facilities and R&D, only sections related to the environment have been included. (Millions of yen) Item Contents 2018 2019 Scheduled repair of glass melting furnaces and production Total investment rationalization investment, investment to improve manufacturing 15,819 24,166 productivity of major products Development and improvement of process technology, Total research and development costs and development of products, including FPD glass and glass 6,958 6,901 for electronic devices Proceeds from sales of valuable Sales of scrap metal, scrap bricks, etc. 8 23 resources related to ③ of（1）
Proceeds from sales of valuable 0 0 resources related to（2）
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Environmentally Friendly Products
We contribute to a sustainable society by providing products that help conserve the global environment.
Saving energy and labor
E Glass Fiber G-Leaf™ Lamion™ (Chopped strands) Ultra-thin glass Ultra-thin glass laminated on resin
Used in plastic automobile parts, this Just micrometers thin, it helps make devices This material combines the superb material helps make cars lighter. lighter. It also expands the possibilities of properties of glass and resin. It is used on labor saving in manufacturing through its train station platform doors thanks to its use in a roll-to-roll process. strength and light weight.
Lumiphous™ Substrate glass Phosphor-glass with scattering layer composite for OLED lighting
This wavelength-converting material helps This substrate glass is used to effectively expand the range of applications for enhance light extraction efficiency in OLED energy-saving LED lighting. lighting, a promising next-generation energy-saving light source.
Reducing environmental Creating energy impact
E Glass Fiber Solid-state High-efficiency (Roving) sodium-ion deep UV- secondary battery transmitting (Under development) glass
This material is used as reinforcement for This product uses a cathode material made Used for LED antiseptic lamps, this glass the plastic blades of wind turbines. It also of sodium-based crystallized glass. The can contribute to the replacement of holds promise as reinforcement in the material is highly safe and can be reliably antiseptic lamps that use environmentally hydrogen gas tanks of fuel-cell vehicles. procured. harmful mercury.
NEWS NEG receives Director’s Award from Environmental Conservation Association of Shiga Prefecture
NEG received the Environmental Conservation Association of Shiga Prefecture’s Director’s Award in recognition of the excellent results achieved through its environmentally friendly business practices. These results include not only reduced environmental impact but also sustainable development, biodiversity protection, and high-level energy-saving initiatives.
Integrated Report 2019 45 Diversity and Inclusion
We maintain a safe and healthy working environment for all employees and strive to develop competent human resources.
In addition to striving for a workplace where all employees can Recruitment and Workplace achieve a work-life balance, under our Women’s Environment Maintenance Empowerment Project we hold events for female employees to In addition to our continued commitment to provide exchange information and opinions with staff at other firms. employment for people with disabilities, we also strive to We are also working to nurture female leaders for positions in cultivate a work environment in which the diverse backgrounds management. and values of employees are respected and in which 6th Action Plan (Outline) employee welfare and happiness is a priority. (April 1, 2018 to March 31, 2021)
▶ Employment of People with Disabilities ● Childcare leave In 1980, we established a special-purpose subsidiary aimed at Women: To achieve more than 75% utilization rate employing people with disabilities. We were among the first six Men: To achieve more than 13% utilization rate of those whose spouse has given birth companies in Japan to do so. For its outstanding action in ● Introduction of a new system, and hiring and training young people, this subsidiary was in 2018 strengthening of existing systems, granted Youth Yell certification from Japan’s Ministry of Health, to allow diverse work styles Labor and Welfare, the second special-purpose company in ● Measures to reduce overtime Japan to be certified. As of the end of 2019, we had achieved work a 4.1% employment rate for people with disabilities. We are ● Promotion of use of now working to raise this to 4.4%, which is double the statutory annual paid leave requirement.
Percentage of Employees with Disabilities Percentage of Female Employees and (%) 4.1 Percentage of people Female Leaders (NEG) with disabilities among 4.0 (%) Percentage of female leaders = employees of the Number of female leaders ÷ Number of female employees company and group 10.0 3.5 companies in Japan 10
3.0 8 8.4
2.5 2.2 Statutory employment 6 rate in Japan 2.0 2.1 National average 4
1.5 Percentage of female employees 08 09 10 11 12 13 14 15 16 17 18 19 2 Percentage of female leaders
0 Support for Raising the Next Generation 15/12 16/12 17/12 18/12 19/12 ▶ Note: A female leader is a female employee who oversees and manages subordinates. In February 2019, we received Platinum Kurumin accreditation under the Act on Advancement of Measures to Support Raising Next-Generation Children in Japan. In the past, we had Responding to Globalization received Kurumin accreditation four consecutive times, In order to respond to the rapid globalization of our operations, testament to our support of employees raising children. This we are actively hiring foreign nationals and cultivating global time, we were accredited under the stricter requirements of the personnel who can work effectively anywhere in the world. We Platinum Kurumin mark in recognition of the efforts we made are also improving group synergy via personnel exchange with our Fifth Action Plan (ending in 2018), under which we between Japan and overseas subsidiaries, and among some implemented measures encouraging employees to take annual overseas subsidiaries. In the future, we are considering paid leave and male employees to take childcare leave, and to creating a global human resource system in order to gain even build a pleasant working environment. greater synergy.
46 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Health and Productivity Management
Since we believe that improving the health of all employees leads to corporate growth, we are developing health and safety activities based on health and productivity management. We are also implementing work-style reforms. We have established key performance indicators (KPIs) for mental and physical health, and we are rolling out activities, education, and other initiatives aimed at improving the health of employees in each area. Human Rights Initiatives Mental and Physical Health KPIs In line with the spirit of our corporate philosophy structure, Physical health respect for human rights are set forth in our Code of Conduct and Principles of Activities. Led by our committee on human Percentage with BMI of 25 or more rights issues, we perform human rights education and 2019 34.7% 2022 28.0% participate in and dispatch executives to projects run by Mental health administrative and external groups. Our company is a board member of the Shiga Prefecture Human Rights Issues Liaison Percentage suffering from high stress Committee. Based in Shiga Prefecture, where our main Average for past 3 years 20.0% 2022 16.0% operations are located, this committee allows us to play a leading role in promoting human rights in the region. NEG and the NEG Health Insurance Society were both certified in the 2020 Certified Health and Productivity Management Outstanding Organizations Recognition Program. The selections for certification are made jointly by the Ministry of Economy, Trade and Industry and the Nippon Kenko Kaigi. This certification system recognizes companies that engage in strategic health and productivity management for their employees. This marks our second consecutive certification.
Human rights education Organization Chart of the Committee on Human Rights Issues
Headquarters Make-up of Headquarters and Area Branches ▶ Health and Safety Headquarters Regarding health and safety, our Principles of Activities state Otsu Branch Head: that “We put safety first in everything we do, and we abide by Director in charge of Human Resources all rules and regulations regarding health and safety.” Under Takatsuki Branch Committee members: Representatives of each area branch our company-wide health and safety program, our health and
Notogawa Branch Area Branches productivity management philosophy forms the basis for an Branch head: action policy aimed at maintaining and improving the mental Tokyo Branch Head of area branch and physical health of each employee. This allows us to create Committee members: Heads of departments of area branches a vibrant working environment that increases the creativity and Osaka Branch and female committee members productivity of the entire corporation.
Integrated Report 2019 47 In addition to periodic workplace patrols, we also implement • Task inventory checks • Active use of IT • Conference reforms • 5 consecutive days of leave • Full implementation of no-overtime days educational awareness campaigns, hazard prevention • Telecommuting system • Re-employment system activities, and information sharing among all operational sites Main Initiatives Newly established systems (from April 2020) both in Japan and overseas, so that we can increase • Expansion of workplaces eligible for flextime awareness of health and safety issues and achieve our • Work-style reform-related training • Provision of child-rearing and nursing care-related information zero-accident benchmark. Furthermore, for all employees we Number of Paid Leave Days Taken have an EAP (Employee Assistance Program), mental health Days Taken Percentage of Days Taken classes, and stress checks as part of our measures concerned Fiscal 2019 16.3 68% with mental health. Human Resource Development In fiscal 2019, for the first time in five years, an employee at NEG suffered an accident resulting in lost workdays. This has In order to attain our goal of being the world’s leading brought into focus issues that we will incorporate into the manufacturer of special glass, we need to have human health and safety initiatives we implement in fiscal 2020 and resources capable of performing at a world-class level in all afterward in order to ensure we remain accident-free. areas. We help our employees to better themselves by offering them a range of study opportunities, such as on-the-job Industrial accident frequency rate (NEG) 0.3 training, level-specific training, global human resource training, Organization Chart of Health and Safety for Each Area skills training, and self-development programs that include Health and Safety Committe acquiring industry certification. • General health and safety manager • Safety manager • Health manager • Industrial physician • Secretariat We will continue to provide our
Health and Safety Each workplace Accident Prevention employees with more robust Promotion Committee Conference training, which will help them • Health and Safety • Safety manager • Affiliates Promotion Committee • Health manager • Subcontractors members get to that next level. • Secretariat • Health and Safety • Secretariat Young employee training (5th year) Promotion Committee members Specialty • Operation chief Training Programs sub-committees • Health and Safety Promotion Category Items Committee members New employee training, young and mid-career employee Level- training (3rd, 5th, 10th year), managerial position training, specific training for employees over the age of 50 ▶ Work-style Reforms training (career development seminar, life plan seminar) We started promoting work-style reforms in 2017. By Global Global Communications Program (GCP, practical business eliminating unnecessary and duplicated work through task human English training), overseas training for newly hired resource administrative employees, skills development language inventory checks and maximizing use of IT, we have improved training training (English, Chinese) efficiency. These efforts have enabled us to reduce overtime Skills Intellectual property training, accounting seminars, sales training, lectures on glass basics, AI and IoT seminars work and increase the taking of paid leave. The benefits of training Compliance training, information security training, health these efforts have been returned to our employees via an Others and safety seminars, industry certification and other expanded welfare program and other ways. self-development programs
NEWS Recognized as Best Practices Company in Reducing Long Work Hours
As part of the Ministry of Health, Labor and Welfare’s campaign to eliminate overwork, the Director of the Shiga Labor Bureau visited the Otsu Plant. This visit was in response to the Directors of prefectural labor bureaus urging officials in each prefecture to identify and report on best practices companies that are being proactive about reducing long work hours. After the Shiga Director’s visit, the Otsu Plant’s practices were posted on the Shiga Prefecture website.
Our utilization of IT to streamline operations, our encouragement of employees to take five consecutive days of leave, and our efforts to improve working environments, among other work-style reform-focused practices, were well received. The Director of the Shiga Labor Bureau visits NEG
48 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
VOICE
respond more quickly and effectively when problems arise. As a result, we were able to continue until the final curtain closed on CRT production in 2014, making us the “last man standing.” In this environment, a blending of Japanese and Malaysian
Nippon Electric Glass (Malaysia) thinking took place, fostering a corporate culture of “NEGM Production Director DNA.” Zainol Aman Shah
Nippon Electric Glass (Malaysia) (“NEGM”) was established in Since 2007 we have increased production of glass fiber, to January 1991 as the first overseas production base funded which the NEGM DNA of the CRT era has now passed, completely by NEG. Initially, NEGM focused on CRT glass becoming more widespread and stronger in the thinking of not post-processing, but after some years it also began handling only our regular employees but also our contract workers. Since glass melting and forming. Since 1996, the diversity of products the acquisition of PPG’s glass fiber business in Europe and the manufactured by NEGM has grown to include glass tubing, U.S., we have also been in greater communication with those glass fiber, heat-resistant glass, and micro capillaries. It is bases, gaining knowledge and technological insights, which we currently the only plant in the NEG Group outside of Japan that use to improve our production systems and processes. All of produces multiple products. this has enabled NEGM to grow significantly, not only in terms of production but also in terms of safety, quality, the environment, Up until around 2001, production had been growing in response corporate social responsibility, governance, and much more. to robust demand for CRT glass, but, unfortunately, the market We have even received certification in the TfS (Together for underwent a rapid contraction, which began in 2005 as a result Sustainability) program developed by our customers. of the shift from CRT to LCDs. While CRT glass production was shutting down all around the world, NEGM kept it going until the In order to achieve the current medium-term business plan, very end. EGP2021, we are breaking it down into achievable targets for each level and establishing specific KPIs that we are working Employees constitute an important asset for a company— towards. We are also strictly implementing the PDCA cycle in arguably its most important one. In 2006, the operation order to ensure that we are always improving. headquarters of the CRT business was moved from Japan to NEGM, and many Japanese CRT team members transferred to I believe that productivity improvement and cost reduction are NEGM. This introduced a wealth of management and never-ending tasks. Improvement and innovation are ideas that technology-related expertise to NEGM team members and we seek to embed into each and every team member’s cultural resulted in a major change in awareness and approach. mindset so that, together, we can be the most competitive and Particularly with regard to improving production systems and customer-satisfying company in the world. NEGM Boleh!* processes, we learned to place greater importance on the decision-making processes, and this has helped us be able to *Boleh means “can do it” in Malay.
New Uniforms
In October 2019, on the occasion of our 70th anniversary, we introduced new company uniforms, which have been redesigned to better embody the essence of NEG within a theme that encompasses “glass, nature, the future, and diversity.” In addition to improved functionality and comfort, a unisex design has also been adopted for these uniforms. This stylish, innovative design based around our corporate colors not only looks great but will contribute to employees feeling great.
The former uniforms have been collected from employees and donated to the Japan Relief Clothing Center, an authorized NPO.
Integrated Report 2019 49 Community Contribution
We contribute to the development of local communities through initiatives based on activities rooted in those communities. Our main activities include local clean-ups, plant tours, educational support, and involvement in community events.
Supporting the Younger Generation
▶ Welcoming Visitors to Our Plants and the Showroom We welcome local children, students, and neighborhood councils to visit our plants and showroom. This supports the development of the younger generation and deepens the community’s understanding of our business activities. In 2019, we welcomed about 520 visitors to tour our plants in Japan and overseas. For the year as a whole, a cumulative total of about 490 local residents visited facilities that we opened to the public.
Local high school students tour the Lexington Students from Moriyama Junior High School Supporting Shiga Prefecture’s plant of Electric Glass Fiber America visit the Otsu Plant as part of their environmental Lake Biwa Floating School program education
▶ Visiting Lessons ▶ Academic–industrial Collaboration
Every year, we co-sponsor and cooperate with Otsu City We concluded a comprehensive university–industry Science Museum in their IF (Innovation for the Future) Class collaboration agreement with the University of Shiga program. We give visiting lessons to local elementary and junior Prefecture in 2007. Based on that agreement, we have been high school students, in which they can learn about the collaborating with the university on a variety of ongoing characteristics and functions of glass, and also enjoy the projects, which include the establishment of an endowment experience of cutting glass. In addition, since 2018 we have course, joint research and technological exchange on glass facilitated school field trips to our Otsu Plant. Through tours of engineering, and supporting the development of tomorrow’s our product showroom combined with hands-on lessons leaders. In July 2019, based on the significant results that demonstrating the joys of manufacturing, we give children a terrific had been achieved, an agreement was reached on further opportunity to experience the unlimited possibilities of glass. extension of this collaboration and the continuation of NEG’s endowment course. The extension period will be for a further three years after the current period ends on April 1, 2022.
An IF Class visiting lesson
Students visit our showroom Agreement reached on extending the agreement with the University of Shiga Prefecture
50 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Coexistence with Local Communities
To strengthen our ties with local communities, we carry out Employees joining local clean-ups Approx. 300 volunteer activities such as cleaning and planting greenery, host various events to which we invite local residents, and hold People visiting our summer festival and other events Approx. 2,750 donation and support activities. See the table on the right for People joining dialogue between NEG Approx. 90 our activities in 2019 in Japan and overseas. and neighborhood councils
▶ Photographs of Main Events and Support Activities
Fishing tournament at Lake Biwa to remove non-native fish, Otsu Plant Donation to a neighboring village by Electric Glass (Guangzhou)
Local children’s center cultural activities facilitated by Electric Glass (Korea) Children playing in Takatsuki Industrial Park (a park managed by Shiga-Takatsuki Plant, which is free to use)
A summer festival to which we invited local residents, Notogawa Plant Donation by Paju Electric Glass to a birthday party for local elderly residents living alone
Integrated Report 2019 51 Other Initiatives
We will continue working to enhance our corporate value by maintaining active communication with various stakeholders.
We declare in our Group Code of Conduct that we disclose stakeholders in gaining a better understanding of our group, necessary corporate information in a timely and appropriate we make active use of news releases and web pages to manner, and communicate on a broad basis with stakeholders. present such information in a timely, appropriate, and fair To enhance our corporate value, we strive to maintain active manner, in accordance with Japan’s Fair Disclosure Rules. communication and deepen mutual understanding with various Basic Stance on Information Disclosure stakeholders. https://www.neg.co.jp/en/ir/disclosure/ Communicating with Shareholders and Investors Communicating with Customers General Meeting of Shareholders ▶ The principle of “customer first” is a key value in our corporate On March 27, 2020, the 101st General Meeting of philosophy structure, and a commitment to being the world’s Shareholders was held in the conference room at our head best in customer satisfaction is one of our essential management office. Following a report on the fiscal year results and the state policies, as we aim to further improve customer satisfaction while of our business, our management responded in a sincere delivering safe, reliable, and high-quality products. manner to issues raised by our shareholders. ▶ Product Safety
Basic Policy We always offer safe products that consumers can use without worry. 1. Place the utmost importance on ensuring product safety from the design stage 2. Continue to improve product safety through quality assurance 3. Continue to reduce risks throughout the product life cycle 4. In case of an accident involving our product, disclose information and ensure product safety promptly
Product Safety Management Committee ▶ Communicating with Investors We have established the Product Safety Management We communicate with institutional investors, both in Japan and Committee to help improve the safety of our products. overseas, by way of various activities, including interviews, Committee members are selected from each Line Department teleconferences, financial results briefing sessions, and involved in product manufacturing and sales, and from Staff participation in IR-related events organized by securities firms. Departments in charge of design of products and processes. The opinions and requests that we received from investors are fed back to our management and utilized to help improve our ▶ Quality Assurance investor relations activities. Basic Policy Fiscal 2019 Results Under the principle of “customer first,” we offer products that Total number of dialogues carried out 132 companies satisfy customers through the cooperation of all divisions involved in product sales, manufacturing, and development. ▶ Information Disclosure Tools 1. Properly understand customer needs for products and continue to reflect these needs in product specifications Through the use of the Tokyo Stock Exchange’s Timely 2. Market products that comply with appropriate quality Disclosure Network (TDnet), and by posting information on our assurance standards website in a timely fashion, we ensure that we provide prompt 3. Continue to improve product quality and enhance the level disclosure of information according to the rules for disclosure of manufacturing that ensures product quality 4. Take prompt and appropriate action to manage any established by the Tokyo Stock Exchange. Furthermore, with problems reported by customers regard to information that we believe will assist our
52 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Quality Assurance Department Communicating with Business Partners We have established the Quality Assurance Department in each Line Department involved in product manufacturing to perform ▶ Basic Procurement Policy and Request reliable quality assurance for each product in response to to Our Business Partners customer requests and to help increase manufacturing levels. Under the basic procurement policy that we have established, we seek to build up reliable relationships with business Quality Auditing Division partners who can provide us with products and services of We have established the Quality Auditing Division at our head superior quality and price competitiveness. In order to enhance office to drive cross-company efforts to improve quality the performance and efficiency of the entire supply chain, we assurance levels within the entire group. ask our business partners to work to improve their Diagram of the Product Safety and Quality competitiveness and to comply with laws and regulations. Assurance System Basic Procurement Policy
Board of Directors ❶ Open and fair business dealings ❷ Harmonious mutual prosperity with partners Product Safety Management Committee President ❸ Compliance with social norms Improvement of product safety Management ❹ Environmental consciousness (green procurement) • Appropriate design, manufacturing, and Committee warnings • Horizontal alignment between divisions Request to Our Business Partners • Collection and sharing of information on safety, case studies ❶ Competitiveness of purchasing products Executive Officers ❷ Compliance with laws, regulations, and social norms Cooperation in terms of planning, design, and ❸ Environmental preservation and operational safety improvement in Line Departments/Staff ❹ Appropriate information security intersectional areas Departments involved ❺ Sound corporate management in product Quality Auditing Division manufacturing and Improvement of quality assurance levels sales In addition, we place great importance on responsible • Audit of the quality assurance situation Responsible • Study of a quality assurance system, for ensuring procurement practices aimed at mitigating the risk of sourcing product safety provision of improvement guidance conflict minerals (such as tin, tantalum, tungsten, and gold), • Collection and sharing of information Production and on product quality, case studies processing subsidiaries which are used to finance armed groups abetting human rights violations in the Democratic Republic of the Congo and adjoining countries. ▶ Communicating Product Information We use exhibitions and our website as communication tools for Procurement introducing products and providing various relevant information. https://www.neg.co.jp/en/company/procurement/
Exhibitions https://www.neg.co.jp/en/company/exhibition/ ▶ Briefing Sessions for Business Partners and Global Meeting of Procurement Divisions of Our Group Each year, we hold a briefing session for business partners in order to improve communication with these partners. We also hold a global meeting at which all the procurement divisions from manufacturing sites around the world gather to discuss the procurement policy of our group and to share ideas on compliance and other issues.
Briefing session for business partners
Integrated Report 2019 53 Financial Review
Analysis of Operating Results and Financial Situation
Business Climate and Operating Results subsidiary, and costs incurred from damage to some production equipment in Japan due to typhoons. As a result, The global economic outlook remained unclear in fiscal 2019 loss before income taxes was ¥19,268 million ($175 million) due to the U.S.–China trade dispute and economic downturns (the previous fiscal year’s profit before income taxes was in China and Europe. In Japan, despite an improved income ¥25,429 million). environment and employment figures, exports and manufacturing weakened in the midst of slow demand from We recorded deferred income taxes of ¥11,298 million ($103 overseas. million), a result of a reversal of deferred tax assets due to our consideration of factors such as performance in this fiscal year Against this backdrop, in the Electronics and Information and coming years. As a result, loss attributable to owners of Technology sector, shipments of glass for flat-panel displays parent was ¥33,670 million ($306 million) (the previous year’s (FPDs) were down from the previous fiscal year due to profit attributable to owners of parent was ¥15,200 million). operational decreases by panel manufacturers starting in the Net sales, operating profit, and operating profit ratio third quarter. Sales of cover glass (glass for chemical Net sales Operating profit Operating profit ratio (Billions of yen) （%） strengthening) were down from the previous fiscal year on 300 257 sluggish demand for smartphones. Sales of glass for optical
and electronic devices decreased overall from the previous 200 fiscal year, despite steady shipments for products including phosphor-glass. The start of our joint venture in LTCC (low 100 10.0 temperature co-fired ceramics) in October 2019 contributed to 6.2 5.0 sales. 16 0 0.0 15/12 16/12 17/12 18/12 19/12 In the Performance Materials and Others sector, shipments of glass fiber were down from the previous fiscal year. This was due to a continuing slump in markets for automobile parts and Financial Position lower-than-expected results for housing equipment applications. Shipments of glass tubing for pharmaceutical and Total assets at the end of fiscal 2019 were ¥664,801 million medical use were up over the previous fiscal year due to ($6,044 million), a decrease of ¥60,519 million ($550 million) robust demand in overseas markets. Heat-resistant glass sales from the previous fiscal year. Current assets saw a decrease in were weak. Shipments of glass for building materials remained cash and deposits due to factors such as repayment of debt. at the previous fiscal year’s level. These factors combined to While notes and accounts receivable decreased due to lower produce net sales of ¥257,190 million ($2,338 million), a sales, inventories increased. For property, plant, and decrease of 14.4% from the previous fiscal year. equipment, besides the major factor of continuing depreciation, we recorded impairment losses on tangible fixed While productivity improved overall, operating profit was assets and goodwill at our glass fiber subsidiaries in Europe affected by decreased net sales, high costs due to a lower and the U.S., resulting in decreases in tangible and intangible plant utilization rate for glass fiber, slow earnings recovery for fixed assets. And we reversed deferred tax assets due to our our European and U.S. glass fiber subsidiaries, and rising raw consideration of factors such as performance in this fiscal year material and fuel costs. The result was a gross profit of ¥54,567 and coming years. million ($496 million) and operating profit of ¥15,937 million ($145 million), a 35.9% decrease from the previous fiscal year. Total liabilities were ¥187,646 million ($1,706 million), a As a result, the operating profit ratio was 6.2%, a decrease of decrease of ¥16,126 million ($147 million) from the previous 2.1 points from the previous fiscal year. fiscal year. For current liabilities, repayment of debt resulted in a decrease in short-term debt. In addition, a decrease in For the net amount of other income and expenses, we purchasing resulted in a decrease in notes and accounts experienced total other expenses of ¥35,205 million ($320 payable, and in a decrease in accrued income taxes and million). For other income, we recorded a reversal of reserve for reserve for loss on plant closing. For long-term liabilities, we special repairs. As other expenses, we recorded impairment recorded a reversal of reserve for special repairs after losses on tangible fixed assets and goodwill at subsidiaries of cancelling plans to repair our glass melting furnaces. our glass fiber business in Europe and the U.S., costs incurred from damage to some production equipment and temporary Total net assets at the end of fiscal 2019 were ¥477,155 million operation stoppages due to power outages at an overseas ($4,338 million), a decrease of ¥44,393 million ($404 million)
54 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
from the previous fiscal year. There was a decrease in retained After factoring in a reduction of ¥616 million ($6 million) due to earnings due to the loss attributable to owners of parent. There exchange rate changes on cash and cash equivalents, the was also a decrease in foreign currency translation balance of cash and cash equivalents at the end of fiscal 2019 adjustments due to the strong performance of the yen against was ¥100,977 million ($918 million), a decrease of ¥15,272 some foreign currencies. million ($139 million) from the previous fiscal year.
Liabilities, net assets, and equity ratio (Billions of yen) Net assets Liabilities Equity ratio （%） 800 100.0 Capital Expenditure 665 600 188 90.0 We invested ¥20,160 million ($183,273 million) in capital expenditure during fiscal 2019. Key expenditures included 400 477 80.0 production facility capacity enhancement, equipment 200 70.0 upgrading to improve productivity, and the periodic repair of 71.0 glass melting furnaces. 0 60.0 15/12 16/12 17/12 18/12 19/12 In the Electronics and Information Technology sector, the primary investment expenditure was to improve production Cash Flow Analysis processes of glass for FPDs, while in the Performance Materials and Others sector, the primary investment Cash flows from operating activities expenditure was in upgrading of production equipment. We recorded a loss before income taxes for fiscal 2019. In addition, while there was a decrease in reserve for special repairs, an increase in inventories, and a decrease in accounts Dividend Policy payable, we recorded depreciation and amortization and an impairment loss. As a result, we recorded ¥21,637 million We view shareholder returns as a key management priority. We ($197 million) in net cash provided by operating activities, a seek to ensure that shareholder dividends are stable in the decrease of ¥30,365 million ($276 million) from the previous long term and are not seriously affected by fluctuations in fiscal year. business results. We determine the dividend amount in light of our financial position and other factors, while aiming for a Cash flows from investing activities dividend on equity (DOE) ratio of at least 2%. We also maintain Mainly due to acquisition of property, plant, and equipment flexibility in our dividend policy so that we can adapt and including those for glass for FPDs and glass fiber, net cash adjust to how well we have met the goals in our medium-term used for investing activities was ¥14,317 million ($130 million), business plan. a decrease of ¥5,234 million ($48 million) from the previous fiscal year. The end-of-term dividend for fiscal 2019 was ¥50 ($0.46) per share. When combined with the interim dividend of ¥50 ($0.46) Cash flows from financing activities per share, the annual dividend for fiscal 2019 amounted to We repaid some long-term debt. We also paid dividends to ¥100 ($0.91). For the next fiscal year, we plan to pay the same shareholders and to noncontrolling interests at subsidiaries. As interim, end-of-term, and annual dividends as in fiscal 2019. a result, net cash used for financing activities was ¥21,976 million ($200 million), a decrease of ¥6,527 million ($59 million) Cash dividends* (Yen/share) Interim dividend End-of-term dividend from the previous fiscal year. 100 50 80 Cash flows 60 (Billions of yen) Operating activities Investing activities Financing activities 80 40 50 40 22 20
0 0 15/12 16/12 17/12 18/12 19/12 -14 -40 -22 * Per share of common stock amounts are retroactively adjusted for subsequent stock consolidation.
-80 15/12 16/12 17/12 18/12 19/12
Integrated Report 2019 55 Consolidated Financial Summary
Nippon Electric Glass Co., Ltd. and Consolidated Subsidiaries for the Ten Most Recent Years *Fiscal year ended December 31, 2014 was a nine-month period due to a change in the Company’s fiscal year-end.
2011/3 2012/3 2013/3 2014/3
For the year
Net sales ¥ 390,196 ¥ 338,214 ¥ 287,304 ¥ 252,548
Operating profit 117,471 61,639 24,968 16,171
Profit (loss) attributable to owners of parent 68,609 19,409 10,603 12,432
Depreciation and amortization 52,699 54,785 46,105 35,891
Capital expenditures 110,025 98,788 37,487 46,962
Research and development 4,553 6,464 6,833 6,920
At year-end
Total assets ¥ 692,622 ¥ 687,070 ¥ 697,386 ¥ 707,021
Current assets 238,908 224,416 243,577 247,502
Net property, plant and equipment 417,423 420,311 395,376 393,751
Current liabilities 142,327 135,200 88,038 86,970
Interest-bearing debt 94,273 86,812 102,604 99,492
Net assets 468,038 475,736 495,295 510,807
Cash flows
Cash flows from operating activities ¥ 133,391 ¥ 83,737 ¥ 55,111 ¥ 46,700
Cash flows from investing activities (96,822) (79,827) (46,545) (33,843)
Cash flows from financing activities (11,774) (14,731) 7,667 (11,190)
Cash and cash equivalents at end of year 116,366 105,210 121,741 123,888
Per share of common stock (yen and dollars)
Profit (loss) attributable to owners of parent ¥ 689.59 ¥ 195.09 ¥ 106.58 ¥ 124.97
Net assets 4,660.87 4,727.33 4,914.84 5,057.28
Cash dividends 65.00 75.00 80.00 80.00
Operating profit ratio (%) 30.1 18.2 8.7 6.4
Equity ratio (%) 66.9 68.4 70.1 71.2
Return on equity (%) 15.8 4.2 2.2 2.5
Notes: 1. Profit (loss) attributable to owners of parent per share and net assets per share are calculated based on the average number of shares outstanding during each year and the number of shares outstanding at the end of each year, respectively. 2. As there was no dilutive stock outstanding during these years, diluted profit attributable to owners of parent per share was not calculated. 3. U.S. dollar amounts have been translated from Japanese yen solely for the convenience of the reader using the prevailing exchange rate at December 31, 2019 of ¥110 to U.S. $1.00. 4. As of December 31, 2019, Nippon Electric Glass Co., Ltd. had 26 consolidated subsidiaries and 1 affiliated company accounted for by the equity method.
56 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
(Millions of yen and thousands of U.S. dollars, except per share figures) 2014/12* 2015/12 2016/12 2017/12 2018/12 2019/12
¥ 192,692 ¥ 251,178 ¥ 239,412 ¥ 282,447 ¥ 300,327 ¥ 257,190 $ 2,338,091
5,224 22,035 19,571 32,202 24,866 15,937 144,882
5,938 9,637 4,969 27,184 15,200 (33,670) (306,091)
28,420 37,154 31,256 28,735 29,776 28,576 259,782
45,214 49,212 46,429 52,913 49,340 20,160 183,273
5,527 6,183 6,658 6,898 6,959 6,901 62,736
¥ 731,185 ¥ 726,938 ¥ 693,918 ¥ 764,420 ¥ 725,320 ¥ 664,801 $ 6,043,645
264,001 267,430 254,870 262,932 247,742 241,483 2,195,300
397,273 386,013 367,399 393,818 386,541 358,682 3,260,745
82,701 105,400 86,025 103,836 112,992 96,485 877,136
109,141 109,731 101,997 120,661 112,005 100,479 913,445
522,577 519,801 509,564 543,789 521,548 477,155 4,337,773
¥ 38,837 ¥ 46,797 ¥ 48,261 ¥ 46,160 ¥ 52,002 ¥ 21,637 $ 196,700
(29,264) (32,638) (36,139) (68,644) (19,551) (14,317) (130,154)
1,699 (7,892) (17,624) 9,797 (28,503) (21,976) (199,782)
129,823 133,856 126,167 113,835 116,249 100,977 917,973
¥ 59.69 ¥ 96.88 ¥ 49.95 ¥ 273.29 ¥ 154.26 ¥ (348.50) $ (3.17)
5,163.32 5,159.30 5,069.60 5,416.93 5,346.03 4,885.50 44.41
60.00 80.00 80.00 90.00 100.00 100.00 0.91
2.7 8.8 8.2 11.4 8.3 6.2
70.2 70.6 72.7 70.5 71.2 71.0
1.2 1.9 1.0 5.2 2.9 (6.8)
5. Capital expenditures for FY2014/12 were calculated based on the period from April 1, 2014 to December 31, 2014 for the Company and its domestic consolidated subsidiaries and the period from January 1, 2014 to December 31, 2014 for the Company's overseas consolidated subsidiaries. 6. Per share of common stock amounts are retroactively adjusted for subsequent stock consolidation. On July 1, 2017, common shares were consolidated at a ratio of 5 to 1 based on the number of shares held by shareholders of record as of June 30, 2017. 7. The Company and its consolidated subsidiaries have applied the “Partial Amendments to Accounting Standard for Tax Effect Accounting” (Accounting Standards Board of Japan (ASBJ) Statement No. 28, February 16, 2018) from the beginning of the fiscal year ended December 31, 2019. Accordingly, total assets and current assets for the fiscal year ended December 31, 2018 reflect the retroactive application of this standard. Integrated Report 2019 57 Consolidated Financial Statements
Consolidated Balance Sheets Nippon Electric Glass Co., Ltd. and Consolidated Subsidiaries December 31, 2018 and 2019
Thousands of ASSETS Millions of yen U.S. dollars (Note 1) December 31, 2018 December 31, 2019 December 31, 2019 Current assets: Cash and time deposits (Note 5, 8 and 16) ¥ 116,786 ¥ 101,509 $ 922,810 Notes and accounts receivable – trade (Note 5) 56,796 52,716 479,236 Allowance for doubtful receivables (191) (166) (1,509) Inventories (Note 9) 68,116 81,987 745,336 Other current assets (Note 5 and 7) 6,235 5,437 49,427 Total current assets 247,742 241,483 2,195,300
Property, plant and equipment (Note 10): Land 12,745 11,468 104,254 Building and structures 165,698 162,686 1,478,964 Machinery and equipment (Note 3) 726,468 705,925 6,417,500 Construction in progress 13,405 12,423 112,936 Total property, plant and equipment 918,316 892,502 8,113,654 Accumulated depreciation (531,775) (533,820) (4,852,909) Net property, plant and equipment 386,541 358,682 3,260,745
Intangible assets (Note 10): Goodwill 19,073 – – Other intangible assets 12,864 7,306 66,418 Total intangible assets 31,937 7,306 66,418
Investments and other assets: Investment securities (Note 5 and 6) 46,415 49,037 445,791 Investment in affiliates (Note 6) 3,296 3,441 31,282 Deferred tax assets (Note 2 and 12) 6,476 2,318 21,073 Other assets 2,913 2,534 23,036 Total investments and other assets 59,100 57,330 521,182
Total assets ¥ 725,320 ¥ 664,801 $ 6,043,645
The accompanying notes to the consolidated financial statements are an integral part of these statements.
58 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Thousands of LIABILITIES AND NET ASSETS Millions of yen U.S. dollars (Note 1) December 31, 2018 December 31, 2019 December 31, 2019 Current liabilities: Short-term debt, including current portion of long-term debt (Note 5 and 11) ¥ 45,351 ¥ 35,875 $ 326,136 Notes and accounts payable (Note 5): Trade 38,774 34,893 317,209 Construction and other 10,859 9,788 88,982 Accrued expenses 11,376 10,884 98,945 Accrued income taxes 2,451 1,356 12,327 Reserve for loss on plant closing 2,063 1,047 9,518 Other reserves 105 61 555 Other current liabilities (Note 3, 5 and 7) 2,013 2,581 23,464 Total current liabilities 112,992 96,485 877,136
Long-term liabilities: Long-term debt (Note 5 and 11) 66,654 64,604 587,309 Deferred tax liabilities (Note 2 and 12) 2,351 10,278 93,436 Reserve for special repairs 17,775 11,867 107,882 Other reserves 20 19 173 Net defined benefit liability (Note 14) 1,666 940 8,545 Other long-term liabilities (Note 3, 5, 7 and 13) 2,314 3,453 31,391 Total long-term liabilities 90,780 91,161 828,736
Net assets (Note 15): Shareholders’ equity: Common stock Authorized – 240,000,000 shares in Dec. 2018 and Dec. 2019 Issued – 99,523,246 shares in Dec. 2018 and Dec. 2019 32,156 32,156 292,327 Capital surplus 34,365 34,358 312,345 Retained earnings 448,909 405,560 3,686,909 Treasury stock at cost 2,918,451 shares in Dec. 2018 2,904,626 shares in Dec. 2019 (10,308) (10,258) (93,254) Total shareholders’ equity 505,122 461,816 4,198,327
Accumulated other comprehensive income: Valuation difference on available-for-sale securities 19,482 21,148 192,255 Deferred gains on hedges 109 48 436 Foreign currency translation adjustments (8,261) (10,981) (99,827) Total accumulated other comprehensive income 11,330 10,215 92,864
Noncontrolling interests 5,096 5,124 46,582
Total net assets 521,548 477,155 4,337,773
Contingent liabilities (Note 17)
Total liabilities and net assets ¥ 725,320 ¥ 664,801 $ 6,043,645
Integrated Report 2019 59 Consolidated Statements of Operations Nippon Electric Glass Co., Ltd. and Consolidated Subsidiaries Thousands of Years Ended December 31, 2018 and 2019 Millions of yen U.S. dollars (Note 1) December 31, 2018 December 31, 2019 December 31, 2019 Net sales ¥ 300,327 ¥ 257,190 $ 2,338,091 Cost of sales 233,234 202,623 1,842,027 Gross profit 67,093 54,567 496,064 Selling, general and administrative expenses 42,227 38,630 351,182 Operating profit 24,866 15,937 144,882
Other income (expenses): Interest and dividend income 1,913 1,975 17,955 Interest expense (1,630) (696) (6,327) Depreciation of idle property, plant and equipment (736) (584) (5,309) Subsidy income 278 440 4,000 Loss on impairment (Note 10) (81) (34,775) (316,136) Reversal of reserve for special repairs 3,775 4,394 39,945 Foreign exchange losses (4,950) (1,604) (14,582) Insurance claim income – 616 5,600 Gain on revision of retirement benefit plan (Note 14) 966 – – Loss on suspension of production facilities (951) – – Loss on accident – (3,756) (34,146) Other, net (Note 6) 1,979 (1,215) (11,046) Total other income (expenses) 563 (35,205) (320,046) Profit (loss) before income taxes 25,429 (19,268) (175,164)
Income taxes (Note 12): Current 4,873 2,672 24,291 Deferred 4,869 11,298 102,709 Total income taxes 9,742 13,970 127,000
Profit (loss) 15,687 (33,238) (302,164)
Profit attributable to noncontrolling interests 487 432 3,927
Profit (loss) attributable to owners of parent ¥ 15,200 ¥ (33,670) $ (306,091)
Yen U.S. dollars (Note 1) Amount per share of common stock: Profit (loss) attributable to owners of parent (Note 2) ¥ 154.26 ¥ (348.50) $ (3.17) Diluted profit attributable to owners of parent (Note 2) – – – Cash dividends applicable to the year (Note 15) 100.00 100.00 0.91 The accompanying notes to the consolidated financial statements are an integral part of these statements.
Consolidated Statements of Comprehensive Income Nippon Electric Glass Co., Ltd. and Consolidated Subsidiaries Thousands of Years Ended December 31, 2018 and 2019 Millions of yen U.S. dollars (Note 1) December 31, 2018 December 31, 2019 December 31, 2019 Profit (loss) ¥ 15,687 ¥ (33,238) $ (302,164)
Other comprehensive income (Note 4): Valuation difference on available-for-sale securities (10,642) 1,666 15,145 Deferred gains (losses) on hedges 318 (61) (554) Foreign currency translation adjustments (6,846) (2,647) (24,064) Remeasurements of defined benefit plans, net of tax (347) – – Share of other comprehensive income of associates accounted for using equity method (135) (73) (663) Total other comprehensive income (loss) (17,652) (1,115) (10,136)
Comprehensive income (loss) ¥ (1,965) ¥ (34,353) $ (312,300)
Comprehensive income (loss) attributable to: Owners of the parent ¥ (2,452) ¥ (34,785) $ (316,227) Noncontrolling interests 487 432 3,927 The accompanying notes to the consolidated financial statements are an integral part of these statements.
60 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Consolidated Statements of Changes in Net Assets Nippon Electric Glass Co., Ltd. and Consolidated Subsidiaries Years Ended December 31, 2018 and 2019
Thousands of shares Millions of yen
Number of Common Capital Retained Treasury Valuation Deferred gains Foreign Remeasure- Non- Total shares of stock surplus earnings stock difference on (losses) on currency ments of controlling net assets common available-for- hedges translation defined benefit interests stock issued sale securities adjustments plans, net of tax Balance at January 1, 2018 99,523 ¥ 32,156 ¥ 34,320 ¥ 443,668 ¥ (307) ¥ 30,124 ¥ (209) ¥ (1,280) ¥ 347 ¥ 4,970 ¥ 543,789 Profit attributable to owners of parent – – – 15,200 – – – – – – 15,200 Cash dividends paid – – – (9,947) – – – – – – (9,947) Acquisition of treasury stock (Note 15) – – – – (10,001) – – – – – (10,001) Capital increase of consolidated subsidiaries – – 45 – – – – – – – 45 Other – – – (12) – – – – – – (12) Net changes in items other than shareholdes’ equity – – – – – (10,642) 318 (6,981) (347) 126 (17,526)
Balance at January 1, 2019 99,523 ¥ 32,156 ¥ 34,365 ¥ 448,909 ¥ (10,308) ¥ 19,482 ¥ 109 ¥ (8,261) ¥ – ¥ 5,096 ¥ 521,548 Loss attributable to owners of parent – – – (33,670) – – – – – – (33,670) Cash dividends paid – – – (9,662) – – – – – – (9,662) Acquisition of treasury stock – – – – (0) – – – – – (0) Disposition of treasury stock – – (7) – 50 – – – – – 43 Other – – – (17) – – – – – – (17) Net changes in items other than shareholdes’ equity – – – – – 1,666 (61) (2,720) – 28 (1,087)
Balance at December 31, 2019 99,523 ¥ 32,156 ¥ 34,358 ¥ 405,560 ¥ (10,258) ¥ 21,148 ¥ 48 ¥ (10,981) ¥ – ¥ 5,124 ¥ 477,155
Thousands of U.S. dollars (Note 1)
Common Capital Retained Treasury Valuation Deferred gains Foreign Remeasure- Non- Total stock surplus earnings stock difference on (losses) on currency ments of controlling net assets available-for- hedges translation defined benefit interests sale securities adjustments plans, net of tax Balance at January 1, 2019 $ 292,327 $ 312,409 $ 4,080,991 $ (93,709) $ 177,110 $ 990 $ (75,100) $ – $ 46,328 $ 4,741,346 Loss attributable to owners of parent – – (306,091) – – – – – – (306,091) Cash dividends paid – – (87,836) – – – – – – (87,836) Acquisition of treasury stock – – – (0) – – – – – (0) Disposition of treasury stock – (64) – 455 – – – – – 391 Other – – (155) – – – – – – (155) Net changes in items other than shareholdes’ equity – – – – 15,145 (554) (24,727) – 254 (9,882)
Balance at December 31, 2019 $ 292,327 $ 312,345 $ 3,686,909 $ (93,254) $ 192,255 $ 436 $ (99,827) $ – $ 46,582 $ 4,337,773 The accompanying notes to the consolidated financial statements are an integral part of these statements.
Integrated Report 2019 61 Consolidated Statements of Cash Flows Nippon Electric Glass Co., Ltd. and Consolidated Subsidiaries Thousands of Years Ended December 31, 2018 and 2019 Millions of yen U.S. dollars (Note 1) December 31, 2018 December 31, 2019 December 31, 2019 Cash flows from operating activities: Profit (loss) before income taxes ¥ 25,429 ¥ (19,268) $ (175,164) Depreciation and amortization 29,776 28,576 259,782 Loss on suspension of production facilities 951 – – Loss on impairment of fixed assets 81 34,775 316,136 Decrease in reserve for special repairs (5,503) (5,908) (53,709) Interest and dividend income (1,913) (1,975) (17,955) Interest expense 1,630 695 6,318 Foreign exchange losses 3,819 1,107 10,064 Decrease in notes and accounts receivable, trade 2,693 3,074 27,945 Decrease (increase) in inventories 71 (14,210) (129,182) Increase (decrease) in notes and accounts payable 2,971 (3,513) (31,936) Other, net (4,569) 425 3,864 Subtotal 55,436 23,778 216,163 Interest and dividends received 1,902 1,943 17,664 Interest paid (1,460) (771) (7,009) Proceeds from insurance claim income – 616 5,600 Income taxes paid (3,876) (3,929) (35,718) Net cash provided by operating activities 52,002 21,637 196,700
Cash flows from investing activities: Proceeds from sales of marketable and investment securities 3,449 125 1,136 Purchases of property, plant and equipment (25,477) (13,963) (126,936) Purchase of shares of subsidiaries resulting in change in scope of consolidation – (202) (1,836) Other, net 2,477 (277) (2,518) Net cash used in investing activities (19,551) (14,317) (130,154)
Cash flows from financing activities: Decrease in short-term debt, net (4,893) (697) (6,336) Proceeds from long-term borrowings 5,592 1,225 11,137 Repayment of long-term borrowings (8,927) (11,759) (106,900) Proceeds from issuance of unsecured bonds – 10,000 90,909 Redemption of unsecured bonds – (10,000) (90,909) Acquisition of treasury stock (10,001) (0) (3) Cash dividends paid (9,942) (9,662) (87,836) Cash dividends paid to noncontrolling interests (416) (593) (5,390) Other, net 84 (490) (4,454) Net cash used in financing activities (28,503) (21,976) (199,782)
Effect of exchange rate changes on cash and cash equivalents (1,534) (616) (5,600)
Net increase (decrease) in cash and cash equivalents 2,414 (15,272) (138,836) Cash and cash equivalents at beginning of year 113,835 116,249 1,056,809 Cash and cash equivalents at end of year (Note 8) ¥ 116,249 ¥ 100,977 $ 917,973 The accompanying notes to the consolidated financial statements are an integral part of these statements.
62 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Notes to Consolidated Financial Statements Nippon Electric Glass Co., Ltd. and Consolidated Subsidiaries
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements of (c) Cash and cash equivalents Nippon Electric Glass Co., Ltd. (“the Company”) and its In preparing the consolidated statements of cash flows, consolidated subsidiaries have been prepared in cash on hand, deposits placed with banks on demand and accordance with the provisions set forth in the Japanese short-term highly liquid investments with maturities of three Financial Instruments and Exchange Law and its related months or less when deposited or purchased are accounting regulations and in conformity with accounting considered to be cash and cash equivalents. principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and (d) Marketable and investment securities disclosure requirements from International Financial Available-for-sale securities with observable fair market Reporting Standards (“IFRS”). values are stated at fair market value. Unrealized gains and The accompanying consolidated financial statements losses on these securities are reported, net of applicable have been restructured and translated into English with income taxes, as a separate component of net assets. certain expanded disclosures from the consolidated Realized gains and losses on the sale of such securities are financial statements of the Company prepared in calculated using moving average cost. accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance (e) Allowance for doubtful receivables as required by the Japanese Financial Instruments and Allowance for doubtful receivables is provided in an amount Exchange Law. Certain supplementary information included sufficient to cover possible losses on collection. For regular in the statutory Japanese language consolidated financial receivables, it consists of an estimated amount based on statements, but not required for fair presentation, is not the historical ratio of bad debt losses. For receivables from presented in the accompanying consolidated financial customers in financial difficulty, it consists of the estimated statements. noncollectable amounts of specific doubtful receivables. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of (f) Inventories the readers outside Japan, using the prevailing exchange Inventories are stated principally at the lower of cost or net rate at December 31, 2019, which was ¥110 to U.S. $1.00. realized value, with cost determined by the moving average The translations, provided for convenience, should not be method. construed as representations that the Japanese yen amounts have been, could have been or could in the future (g) Property, plant and equipment (except for leased be converted into U.S. dollars at this or any other rate of property) exchange. Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the 2. Significant accounting policies Company and its domestic consolidated subsidiaries is calculated by the declining balance method at rates based (a) Consolidation policies on the estimated useful life of the assets. Buildings, Under Japanese GAAP, companies are required to excluding facilities attached to buildings, acquired after consolidate all significant equity investments over which March 31, 1998, are depreciated using the straight-line they have the power of control through a majority of voting method. Facilities attached to buildings and structures rights or the existence of certain other conditions acquired after March 31, 2016, are also depreciated using evidencing control. the straight-line method. Depreciation of property, plant The accompanying consolidated financial statements and equipment of overseas consolidated subsidiaries is include the accounts of the Company and substantially all calculated principally by the straight-line method based on of its subsidiaries. All significant intercompany transactions the estimated useful life of the assets. The estimated useful and account balances are eliminated upon consolidation. life of machinery and equipment is generally from 6 to 9 Investments in unconsolidated subsidiaries and affiliates years. are accounted for by the equity method or by cost. If the equity method of accounting had been applied to the investments in these companies accounted for by cost, the (h) Intangible assets (except for leased property) effect on the accompanying consolidated financial Intangible assets are amortized by the straight-line method. statements would not have been material. (i) Reserve for directors’ bonuses (b) Translation of foreign currencies To provide a reserve for directors’ bonuses, the Company All short-term and long-term monetary receivables and and its consolidated subsidiaries record the amount payables denominated in foreign currencies are translated estimated to be paid to directors after the balance sheet into Japanese yen at the relevant exchange rates at the date for their services rendered during the fiscal period. balance sheet date. The financial statements of the Company’s overseas consolidated subsidiaries are translated into Japanese yen at the current rates for assets and liabilities and at historical rates for shareholders' equity accounts. Average yearly rates are used for the translation of income and expense amounts. Foreign currency translation adjustments are recorded in net assets.
Integrated Report 2019 63 (j) Severance and retirement benefits shares that would be outstanding assuming all dilutive The Company and its consolidated subsidiaries, excluding convertible bonds were converted at the beginning of the certain consolidated subsidiaries, principally use a simplified year at the current conversion price. Diluted profit method for calculating projected benefit obligation which attributable to the owners of the parent per share has not provides for accrued retirement benefits for voluntary been presented because there were no potentially dilutive retirement at the end of the fiscal year because few shares of common stock for the year ended December 31, employees have applied for the defined benefit pension 2018. Diluted profit attributable to the owners of the parent plans. per share has not been presented because the Company In certain consolidated subsidiaries, the allowance for and its consolidated subsidiaries recorded loss attributable employees’ severance and retirement benefits is to the owners of the parent and there were no potentially recognized in an amount after deducting pension assets dilutive shares of common stock for the year ended from retirement benefits for the net defined benefit liability. December 31, 2019. Net defined benefit liability and retirement benefit costs are as follows. (q) Derivatives and hedge accounting The Company and its consolidated subsidiaries state (1) Allocation of projected retirement derivative financial instruments at fair value and recognize benefit obligation changes in the fair value as gain or loss, unless the In calculating the retirement benefit obligation, the benefit derivative financial instruments are used for hedging formula method is used to allocate the projected retirement purposes. benefit obligation to the estimated years of service of the Forward foreign exchange contracts and interest rate eligible employees. swap contracts that meet the criteria for hedge accounting as provided in the “Accounting Standard for Financial (2) Method for amortizing actuarial gain or loss Instruments” are accounted for using deferral hedge Depending on each company’s situation, actuarial gain or accounting, which requires unrealized gain or loss to be loss is amortized at the time of occurrence or by the deferred as net unrealized gain or loss on the contract as a straight-line method over a period not exceeding the component of net assets until the loss or gain related to the estimated average remaining service years of employees hedged item is actually recognized. from the next year following the time of occurrence. The Company and its consolidated subsidiaries enter into forward foreign exchange contracts and interest rate swap (k) Directors’ retirement benefits contracts to hedge the risk of exchange rate fluctuations in To provide for directors’ retirement benefits, the Company forecasted foreign currency transactions and fluctuations in and its consolidated subsidiaries had recorded the amount interest rates on borrowings, respectively. For forecasted that was required by internal corporate policy at the end of foreign currency transactions, the suitability for hedging is the current fiscal year. However, the directors’ retirement confirmed by pretesting and post-testing with consideration benefits system was abolished in June 2004, and the for whether the transaction is highly likely to be executed. Company has ceased recording these provisions since July The Company and its consolidated subsidiaries use 2004. derivative transactions solely for the purpose of managing risks and not for speculation. The counterparties are major (l) Reserve for special repairs financial institutions, therefore, the Company and its To prepare for the significant recurring repairs required of consolidated subsidiaries consider the credit risk to be glass-melting furnaces, estimated costs for the next repairs minimal. The derivative transactions are entered into by are accrued within the period between the previous repair each company in accordance with accounting policies and and the next envisioned repair. decisions made by each company’s management.
(m) Reserve for loss on plant closing (r) Goodwill To provide for loss on plant closing, the Company recorded Goodwill is amortized by the straight-line method over the the estimated cost of closing the plant. period it is expected to have an effect.
(n) Income taxes (s) Reclassification and restatement The tax effects of loss carryforwards and temporary The Company and its consolidated subsidiaries have differences between the financial statement basis and the applied the “Partial Amendments to Accounting Standard tax basis of assets and liabilities are recognized as deferred for Tax Effect Accounting” (Accounting Standards Board of tax assets and liabilities. The provision for income taxes is Japan (ASBJ) Statement No. 28, February 16, 2018) computed based on the pretax income included in the (“Partial Amendments”) from the beginning of the fiscal year consolidated statements of operations. ended December 31, 2019. Accordingly, deferred tax assets and deferred tax liabilities are presented under (o) Research and development investments and other assets and under long-term Costs related to research and development activities are liabilities, respectively, and the notes related to tax effect charged to income as incurred and amounted to ¥6,959 accounting have been changed. million and ¥6,901 million ($62,736 thousand) for the fiscal As a result, “Deferred tax assets” of ¥4,889 million years ended December 31, 2018 and 2019, respectively. presented under “Current assets” in the consolidated balance sheet as of December 31, 2018 has been included (p) Profit (loss) attributable to owners of parent in “Deferred tax assets” of ¥6,476 million under per share “Investments and other assets” and “Deferred tax assets” The computations of profit attributable to the owners of the of ¥255 million presented under “Current assets” in the parent per share are based on the average number of consolidated balance sheet as of December 31, 2018 has shares of common stock outstanding during each year. been included in “Deferred tax liabilities” of ¥2,351 million Diluted profit attributable to the owners of the parent per under “Long-term liabilities.” share of common stock is computed based on the average Also, the notes related to tax effect accounting number of shares outstanding increased by the number of additionally included those described in Note 8 (excluding
64 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
total amount of valuation allowance) and Note 9 of fiscal year ended December 31, 2019. In accordance with “Accounting Standard for Tax Effect Accounting,” which the transition measures of IFRS 16, the subsidiaries are required in Paragraphs 3 to 5 of the Partial recognized the cumulative impact of IFRS 16 at the Amendments. However, this additional information beginning of the fiscal year ended December 31, 2019. corresponding to the year ended December 31, 2018 is not They also recognized assets and liabilities related to lease disclosed, in accordance with the transitional treatments contracts which had been previously accounted for as prescribed in Paragraph 7 of the Partial Amendments. operating leases as a lessee in accordance with Certain prior period amounts have been reclassified to International Accounting Standards (“IAS”) 17. conform to the current year presentation. These According to this adoption, “Machinery and equipment” reclassifications had no impact on the previously reported under “Property, plant and equipment” increased by results of operations or retained earnings. ¥1,108 million ($10,073 thousand), “Other current liabilities” under “Current liabilities” increased by ¥455 million ($4,136 thousand) and “Other long-term liabilities” under 3. Changes in accounting policies “Long-term liabilities” increased by ¥793 million ($7,209 Adoption of leases (IFRS 16-Leases) thousand) as of December 31, 2019. The overseas consolidated subsidiaries, excluding those in The effect of these changes on consolidated statements the U.S. applied IFRS 16-Leases from the beginning of the of operations was immaterial.
4. Accounting standards for presentation of comprehensive income
The components of other comprehensive income for the fiscal years ended December 31, 2018 and 2019 were as follows:
Thousands of Millions of yen U.S. dollars 2018/12 2019/12 2019/12 Valuation difference on available-for-sale securities Increase (decrease) during the year ¥ (13,312) ¥ 2,447 $ 22,245 Reclassification adjustments (1,857) (15) (136) Subtotal, before tax (15,169) 2,432 22,109 Tax (expense) benefit 4,527 (766) (6,964) Subtotal, net of tax (10,642) 1,666 15,145
Deferred gains (losses) on hedges Increase during the year 250 195 1,773 Reclassification adjustments 196 (202) (1,836) Subtotal, before tax 446 (7) (63) Tax (expense) benefit (128) (54) (491) Subtotal, net of tax 318 (61) (554)
Foreign currency translation adjustments Decrease during the year (6,846) (2,647) (24,064)
Remeasurements of defined benefit plans Decrease during the year (16) – – Reclassification adjustments (446) – – Subtotal, before tax (462) – – Tax (expense) benefit 115 – – Subtotal, net of tax (347) – –
Share of other comprehensive income of associates accounted for using equity method Decrease during the year (135) (73) (663) Total other comprehensive income (loss) ¥ (17,652) ¥ (1,115) $ (10,136)
Integrated Report 2019 65 5. Financial instruments
(a) Status of financial instruments
(1) Policy on financial instruments As a Group policy, the Company and its consolidated Notes and accounts payable – trade, which are operating subsidiaries restrict investments of surplus cash, if any, to debt, are settled within one year. safe financial assets such as bank deposits. Funds required Regarding borrowings, short-term debt is issued mainly by the Company are obtained mainly through bank to obtain funds for operating transactions, and bonds and borrowings and the issuance of bonds. Derivatives are long-term debt are issued mainly for capital expenditures. used to avoid the risks described below and are not Some borrowings have floating interest rates and are entered into for speculative purposes. exposed to interest rate fluctuation risk against which long-term debt is partially hedged through interest rate (2) Details of financial instruments, associated swap contracts. risks and risk management structure For details regarding hedge accounting of derivatives Notes and accounts receivable – trade, which are operating such as hedging instruments and hedged items and receivables, are exposed to customer credit risk. The hedging policy, refer to Note 2 (q), “Significant accounting Company, pursuant to the Company’s Credit Control policies – Derivatives and hedge accounting.” Regulations, manages credit risk by managing relative due Matters regarding derivative transactions are determined dates and outstanding balances of each counterparty and by executives in charge of accounting at each consolidated by monitoring the credit status of major counterparties. Group company in accordance with the regulations of each Consolidated subsidiaries perform similar procedures in company. Approval for transactions that exceed a certain conformity with the Company’s Credit Control Regulations. scope is granted by the Company’s management Operating receivables denominated in foreign currencies, committee. Operations and management pertaining to the which arise from the Company’s global business execution of derivative transactions are carried out by each development, are exposed to foreign exchange fluctuation company’s accounting department, and such operations risk. The Group enters into forward foreign exchange are managed through a check and balance system. With contracts mainly for accounts receivable associated with derivative transactions, the Company enters into contracts export transactions of finished goods to manage fluctuation only with financial institutions with high ratings to reduce in future foreign exchange rates. credit risk. Investment securities consist mainly of equity securities of Operating debt and borrowings are exposed to liquidity companies with which companies in the Group have risks. The Group manages such risks by cash management business relationships and are exposed to market price forecasting at each Group company. fluctuation risk. The Company, pursuant to the Company’s Shareholdings Regulations, monitors the fair values of such (3) Supplementary explanation for fair values of securities and regularly reviews its holdings. financial instruments The notional amounts of derivatives in Note 7, “Derivatives,” does not indicate the market risks pertaining to the derivatives themselves.
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(b) Fair values of financial instruments The tables below show the book values of financial instruments recorded in the consolidated balance sheet, their fair values and any differences between the book value and fair value as of December 31, 2018 and 2019. Financial instruments whose fair values were deemed to be extremely difficult to estimate were not included. (See in the notes to the tables below – Note 3, “Financial instruments whose fair values are deemed to be extremely difficult to estimate.”)
Millions of yen 2018/12 Book value Fair value Difference (1) Cash and time deposits ¥ 116,786 ¥ 116,786 ¥ – (2) Notes and accounts receivable – trade 56,796 56,796 – (3) Investment securities: Other securities 46,413 46,413 – (4) Short-term debt: Short-term debt (23,585) (23,585) – Current portion of long-term debt (11,766) (11,766) (0) Current portion of unsecured bonds (10,000) (10,024) (24) (5) Notes and accounts payable – trade (38,774) (38,774) – (6) Long-term debt: Unsecured bonds (20,000) (20,175) (175) Long-term borrowings (46,654) (46,705) (51) (7) Derivatives Derivatives not accounted for with hedge accounting (102) (102) – Derivatives accounted for with hedge accounting 68 68 –
Millions of yen 2019/12 Book value Fair value Difference (1) Cash and time deposits ¥ 101,509 ¥ 101,509 ¥ – (2) Notes and accounts receivable – trade 52,716 52,716 – (3) Investment securities: Other securities 49,035 49,035 – (4) Short-term debt: Short-term debt (22,818) (22,818) – Current portion of long-term debt (3,057) (3,084) (27) Current portion of unsecured bonds (10,000) (10,016) (16) (5) Notes and accounts payable – trade (34,893) (34,893) – (6) Long-term debt: Unsecured bonds (20,000) (20,057) (57) Long-term borrowings (44,604) (44,670) (66) (7) Derivatives Derivatives accounted for with hedge accounting 458 458 –
Thousands of U.S. dollars 2019/12 Book value Fair value Difference (1) Cash and time deposits $ 922,810 $ 922,810 $ – (2) Notes and accounts receivable – trade 479,236 479,236 – (3) Investment securities: Other securities 445,773 445,773 – (4) Short-term debt: Short-term debt (207,436) (207,436) – Current portion of long-term debt (27,791) (28,036) (245) Current portion of unsecured bonds (90,909) (91,055) (146) (5) Notes and accounts payable – trade (317,209) (317,209) – (6) Long-term debt: Unsecured bonds (181,818) (182,336) (518) Long-term borrowings (405,491) (406,091) (600) (7) Derivatives Derivatives accounted for with hedge accounting 4,163 4,163 –
Integrated Report 2019 67 Notes: Fair value measurements of financial instruments and matters regarding marketable securities and derivatives
1. Amounts for “Book value” and “Fair value” in parentheses (6) Long-term debt indicate net liabilities. The fair value of unsecured bonds issued by the Company is based on the market price if available and the present 2. Measurements of fair value for financial instruments and value calculated by discounting the total amount of matters regarding marketable securities and derivatives principle and interest outstanding at an appropriate rate considering the time to maturity and the credit risk if the (1) Cash and time deposits and (2) Notes and market price is not available. accounts receivable – trade The fair value of long-term borrowings is measured by The fair value of these items approximates the book value discounting the total amount of principle and interest because of their short-term nature. Thus, the book value is outstanding at an estimated interest rate for similar new used as the fair value. borrowings.
(3) Investment securities (7) Derivatives The fair value of equity securities is based on market prices Refer to Note 7, “Derivatives.” on public exchanges. For information on investment securities, refer to Note 6, 3. Financial instruments whose fair values are deemed to be “Marketable and investment securities.” extremely difficult to estimate
(4) Short-term debt and (5) Notes and accounts Equity securities issued by affiliates, investments in capital payable – trade of subsidiaries and associates and nonlisted equity The fair value of these items, excluding the current portion securities are not included in “(3) Investment securities” of long-term debt and unsecured bonds, approximates the because their fair values were deemed extremely difficult to book value because of their short-term nature. Thus, the estimate, they had no quoted market prices and it was not book value is used as the fair value. The current portion of possible to estimate their future cash flows. For information long-term debt and unsecured bonds, which are included related to these securities, refer to Note 6, “Marketable and in short-term debt, is measured by the methods used in “(6) investment securities.” Long-term debt” below and classified as such.
6. Marketable and investment securities
(a) Acquisition cost and book value of securities with observable market values at December 31, 2018 and 2019 were as follows: Millions of yen 2018/12 Acquisition cost Book value Difference Available-for-sale securities: Securities with book value exceeding acquisition cost: Equity securities ¥ 19,165 ¥ 45,590 ¥ 26,425 Securities with book value not exceeding acquisition cost: Equity securities 936 823 (113) ¥ 20,101 ¥ 46,413 ¥ 26,312
Millions of yen 2019/12 Acquisition cost Book value Difference Available-for-sale securities: Securities with book value exceeding acquisition cost: Equity securities ¥ 19,190 ¥ 48,000 ¥ 28,810 Securities with book value not exceeding acquisition cost: Equity securities 1,101 1,035 (66) ¥ 20,291 ¥ 49,035 ¥ 28,744
Thousands of U.S. dollars 2019/12 Acquisition cost Book value Difference Available-for-sale securities: Securities with book value exceeding acquisition cost: Equity securities $ 174,455 $ 436,364 $ 261,909 Securities with book value not exceeding acquisition cost: Equity securities 10,009 9,409 (600) $ 184,464 $ 445,773 $ 261,309
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(b) Book values of securities with no available market values at December 31, 2018 and 2019 were as follows:
Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Available-for-sale securities: Equity securities issued by affiliates ¥ 1,684 ¥ 1,684 $ 15,309 Investments in capital of subsidiaries and associates 1,612 1,757 15,973 Nonlisted equity securities, other 2 2 18 ¥ 3,298 ¥ 3,443 $ 31,300
(c) Sales of available-for-sale securities sold in the years ended December 31, 2018 and 2019 were as follows:
Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Total sales amounts ¥ 3,449 ¥ 125 $ 1,136 Gains on sales 1,942 15 136
(d) Impairment loss on investment securities The Company recognized impairment loss of ¥85 million on investment securities for the fiscal year ended December 31, 2018. There was no impairment loss on investment securities for the fiscal year ended December 31, 2019. If the fair market value as of the end of each financial quarter has dropped by more than 30% from the acquisition cost, all of the loss on impairment is recognized.
7. Derivatives The fair values of derivative contracts used by the Company and its consolidated subsidiaries at December 31, 2018 and 2019 were as follows:
(a) Derivative transactions not accounted for under hedge accounting
Currency related transactions
2018/12 Millions of yen Classification Type of transaction Notional amountPortion due after 1 year Fair value Unrealized gain (loss) Forward foreign exchange Nonmarket Buy ¥ 161 ¥ – ¥ (3) ¥ (3) transactions Currency swap 230 – (99) (99) ¥ 391 ¥ – ¥ (102) ¥ (102) Note: Fair value is based on prices obtained from financial institutions. There were no derivative transactions not accounted for under hedge accounting for the year ended December 31, 2019.
Integrated Report 2019 69 (b) Derivative transactions to which hedge accounting has been applied
Currency related transactions
2018/12 Millions of yen Method of hedge accounting Type of transaction Hedged item Notional amount Portion due after 1 year Fair value Forward foreign exchange Deferral hedge Forecasted transactions for accounting Sell accounts receivable denominated in foreign currencies ¥ 57,132 ¥ 9,182 ¥ 178 ¥ 57,132 ¥ 9,182 ¥ 178
2019/12 Millions of yen Method of hedge accounting Type of transaction Hedged item Notional amount Portion due after 1 year Fair value Forward foreign exchange Forecasted transactions for Deferral hedge Sell accounts receivable denominated in foreign currencies ¥ 41,661 ¥ 7,925 ¥ 521 accounting Forecasted transactions for Buy accounts payable denominated in foreign currencies 102 – 0 ¥ 41,763 ¥ 7,925 ¥ 521
2019/12 Thousands of U.S. dollars Method of hedge accounting Type of transaction Hedged item Notional amount Portion due after 1 year Fair value Forward foreign exchange Forecasted transactions for Deferral hedge Sell accounts receivable denominated in foreign currencies $ 378,736 $ 72,045 $ 4,736 accounting Forecasted transactions for Buy accounts payable denominated in foreign currencies 928 – 0 $ 379,664 $ 72,045 $ 4,736 Note: Fair value is based on prices obtained from financial institutions.
Interest related transactions
2018/12 Millions of yen Method of hedge accounting Type of transaction Hedged item Notional amount Portion due after 1 year Fair value Deferral hedge accounting Interest rate swap Interest on borrowings ¥ 20,000 ¥ 10,000 ¥ (110)
2019/12 Millions of yen Method of hedge accounting Type of transaction Hedged item Notional amount Portion due after 1 year Fair value Deferral hedge accounting Interest rate swap Interest on borrowings ¥ 10,000 ¥ 10,000 ¥ (63)
2019/12 Thousands of U.S. dollars Method of hedge accounting Type of transaction Hedged item Notional amount Portion due after 1 year Fair value Deferral hedge accounting Interest rate swap Interest on borrowings $ 90,909 $ 90,909 $ (573)
Note: Fair value is based on prices obtained from financial institutions.
8. Cash and cash equivalents
Cash and cash equivalents at December 31, 2018 and 2019 were as follows:
Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Cash and time deposits on consolidated balance sheets ¥ 116,786 ¥ 101,509 $ 922,810 Time deposits due over three months (537) (532) (4,837) Cash and cash equivalents in consolidated statements of cash flows ¥ 116,249 ¥ 100,977 $ 917,973
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9. Inventories
Inventories at December 31, 2018 and 2019 consisted of the following:
Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Finished and purchased goods ¥ 40,498 ¥ 52,552 $ 477,745 Work-in-process 1,583 3,139 28,536 Raw materials and others 26,035 26,296 239,055 ¥ 68,116 ¥ 81,987 $ 745,336
10. Loss on impairment There was no materiality for loss on impairment for the fiscal year ended December 31, 2018. Loss on impairment for the fiscal year ended December 31, 2019 is summarized below.
(a) Grouping The Company and its consolidated subsidiaries group operating assets by business unit for which the profit or loss is continually controlled to measure the impairment of the assets. Idle assets which are not used for business are treated separately. Loss on impairment for the asset groups for the fiscal year ended December 31, 2019 was as follows.
Loss on impairment Millions of yen Thousands of U.S. dollars Use Location Type 2019/12 2019/12 Goodwill ¥ 15,475 $ 140,682 Electric Glass Fiber Trademarks 1,695 15,409 America, LLC Other 2,693 24,482 Subtotal 19,863 180,573 Construction in progress 5,005 45,500 Business assets for Electric Glass Fiber NL, Machinery and equipment 1,203 10,936 glass fiber B.V. Other 1,879 17,082 Subtotal 8,087 73,518 Machinery and equipment 2,865 26,045 Electric Glass Fiber UK, Building and structures 1,484 13,491 Ltd. Other 2,087 18,973 Subtotal 6,436 58,509 Notogawa factory, Land 256 2,327 Shiga-Takatsuki factory, Machinery and equipment 97 882 Significant idle assets SGS Engineering Co., Other 36 327 Ltd., other Subtotal 389 3,536 Total ¥ 34,775 $ 316,136
Integrated Report 2019 71 (b) Other information on the assets
(1) Business assets for glass fiber
1. Reason to recognize impairment Since the second half of 2018, market competition has intensified due mainly to weak demand in Europe and China. Due to circumstances in which the market recovery has been more gradual than expected, the subsidiaries in the U.S. and Europe glass fiber business have not been able to supplement the reduction of sales and increased costs from operational adjustments through internal efforts, and the stagnation of profit continues. As a result, the book values of the assets were written down to their recoverable amounts.
2. Assessment of recoverable values The recoverable values of business assets for the glass fiber business were based on the value in use or net selling price. The value in use was calculated by discounting the future cash flows to be derived from the assets to the present value. The discount rates used for calculating the value in use were 7.5% (after tax) and 8.9% (before tax). Net selling price was measured reasonably by market value.
(2) Significant idle assets
1. Reason to recognize impairment Since there was no plan to use the certain idle assets, the book values of the assets were written down to their recoverable amounts.
2. Assessment of recoverable values The recoverable values of significant idle assets were based on net selling price. No recoverable values were expected for the production facilities of the glass manufacturing line due to the low probability of future sales. The recoverable values of land were the price measured reasonably based on the roadside land prices by the outside expert.
11. Short-term and long-term debt
Short-term debt, including the current portion of long-term debt, at December 31, 2018 and 2019 consisted of the following: Millions of yen Thousands of U.S. dollars 2018/122016/12 2019/12 2019/12 Short-term bank borrowings, average rate 0.8% per annum ¥ 21,585 ¥ 20,818 $ 189,254 Commercial paper, average rate -0.0% per annum 2,000 2,000 18,182 Current portion of long-term borrowings, average rate 0.9% per annum 11,766 3,057 27,791 Current portion of unsecured bonds, average rate 0.3% per annum 10,000 10,000 90,909 ¥ 45,351 ¥ 35,875 $ 326,136 Average interest rate is the weighted average interest rate for amounts outstanding as of the fiscal year end.
72 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
Long-term debt at December 31, 2018 and 2019 consisted of the following: Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Borrowings, principally from banks and insurance companies due from 2020 through 2024, average rate 0.3% per annum ¥ 58,420 ¥ 47,661 $ 433,282 0.7% unsecured bonds, due in 2019 10,000 – – 0.3% unsecured bonds, due in 2020 10,000 10,000 90,909 0.6% unsecured bonds, due in 2022 10,000 10,000 90,909 0.3% unsecured bonds, due in 2026 – 10,000 90,909 88,420 77,661 706,009 Less current portion of long-term borrowings (11,766) (3,057) (27,791) Less current portion of unsecured bonds (10,000) (10,000) (90,909) ¥ 66,654 ¥ 64,604 $ 587,309
The aggregate annual maturities of long-term debt at December 31, 2019 were as follows:
Years ending December 31 Millions of yen Thousands of U.S. dollars 2020 ¥ 13,057 $ 118,700 2021 26,258 238,709 2022 13,057 118,700 2023 13,157 119,609 2024 2,132 19,382 2025 and thereafter 10,000 90,909 ¥ 77,661 $ 706,009
For flexible financing purposes, the Company has committed credit facilities with certain banks. The maximum aggregate credit facility available to the Company is ¥25,000 million ($227,273 thousand). The credit facility has not been used as of December 31, 2019.
12. Income taxes The Company is subject to a number of taxes based on income, which, in the aggregate, indicate a statutory tax rate in Japan of approximately 30.7% and 30.5% for the fiscal years ended December 31, 2018 and 2019, respectively.
The significant differences between the statutory tax rate in Japan and the effective tax rate of the Company and its consolidated subsidiaries for financial statement purposes for the fiscal year ended December 31, 2018 were as follows:
2018/12 2019/12 Statutory tax rate in Japan 30.7% –% Nontaxable dividend income (18.0) – Difference in tax rates for overseas consolidated subsidiaries (1.9) – Permanent difference 1.3 – Undistributed earnings of overseas consolidated subsidiaries (2.7) – Effect of elimination of dividend income 18.2 – Changes in statutory tax rates on the Company and its consolidated subsidiaries (0.3) – Overseas withholding tax 2.4 – Effect of elimination of unrealized gains (0.3) – Movement of valuation allowance 8.2 – Other 0.7 – Effective tax rate 38.3% –%
The details of the differences between the statutory tax rate and effective tax rate for the year ended December 31, 2019 were omitted because the Company recorded a loss before income taxes for the year.
Integrated Report 2019 73 Significant components of the Company’s and its consolidated subsidiaries’ deferred tax assets and liabilities as of December 31, 2018 and 2019 were as follows: Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Deferred tax assets: Tax losses carried forward ¥ 2,882 ¥ 6,461 $ 58,736 Depreciation in excess of tax limit 3,512 5,905 53,682 Goodwill 413 4,655 42,318 Reserve for special repairs 5,421 3,620 32,909 Loss on devaluation of inventories 2,443 2,441 22,191 Unrealized gain on property, plant and equipment 2,831 2,356 21,418 Capital allowances 2,546 2,308 20,982 Loss on valuation of investment securities 1,237 1,237 11,245 Accrued bonuses 365 374 3,400 Reserve for loss on plant closing 629 319 2,900 Long-term prepaid expenses 171 103 936 Other 3,240 3,343 30,392 Subtotal deferred tax assets 25,690 33,122 301,109 Valuation allowance for tax losses carried forward – (5,396) (49,055) Valuation allowance for deductible temporary differences – (18,798) (170,890) Total valuation allowance (6,870) (24,194) (219,945) Total deferred tax assets 18,820 8,928 81,164
Deferred tax liabilities: Valuation difference on available-for-sale securities (6,830) (7,596) (69,054) Depreciation of overseas consolidated subsidiaries (5,818) (6,156) (55,964) Undistributed profit of subsidiaries (1,701) (2,585) (23,500) Other (346) (551) (5,009) Total deferred tax liabilities (14,695) (16,888) (153,527) Net deferred tax assets (liabilities) ¥ 4,125 ¥ (7,960) $ (72,363) Notes: 1. The variance in the valuation allowance is due mainly to the increase in the valuation allowance related to tax losses carried forward and goodwill. 2. Tax losses carried forward and their deferred tax assets by expiration period as of December 31, 2019 were as follows:
Millions of yen Tax losses Valuation allowance for carried forward tax losses carried forward Deferred tax assets 2020 ¥ – ¥ – ¥ – 2021 187 (123) 64 2022 – – – 2023 13 – 13 2024 289 (289) – 2025 and thereafter 5,972 (4,984) 988 Total ¥ 6,461 ¥ (5,396) ¥ 1,065
Thousands of U.S. dollars Tax losses Valuation allowance for carried forward tax losses carried forward Deferred tax assets 2020 $ – $ – $ – 2021 1,700 (1,118) 582 2022 – – – 2023 118 – 118 2024 2,627 (2,627) – 2025 and thereafter 54,291 (45,310) 8,981 Total $ 58,736 $ (49,055) $ 9,681 The amount of tax losses carried forward in the above table is after multiplying by the statutory tax rate.
74 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
13. Asset retirement obligations
(a) Asset retirement obligations recorded on the consolidated balance sheets
(1) Outline of asset retirement obligations Recorded asset retirement obligations are expenses such as the costs for the disposal of machinery and equipment owned by the Company that contain PCB (polychlorinated biphenyl) and the costs for the removal of asbestos from buildings owned by the Company when they are demolished.
(2) Basis for calculating asset retirement obligations Asset retirement obligations are based on estimates provided by specialty companies such as construction companies.
(3) Changes in the total amount of asset retirement obligations during the fiscal years ended December 31, 2018 and 2019 were as follows: Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Beginning balance ¥ 306 ¥ 286 $ 2,600 Decrease due to the fulfillment of asset retirement obligations (10) (10) (91) Change in estimated asset retirement obligations (15) 1 9 Other 5 – – Ending balance ¥ 286 ¥ 277 $ 2,518
(b) Asset retirement obligations not recorded on the consolidated balance sheets
Regarding some factory sites and other properties used under real estate leasing agreements, the Company and its consolidated subsidiaries have obligations related to the cost of restoring such properties to their original state at the time of business termination or moving out. However, since there are uncertainties regarding the lease periods of the properties to which such obligations apply because there are no plans to terminate or move out at this time, it is impossible to reasonably estimate the related asset retirement obligations. Therefore, no asset retirement obligations are recorded in connection with such obligations.
14. Severance and retirement benefits
The Company and its domestic consolidated subsidiaries provide mainly defined contribution pension plans. However, certain employees are provided unfunded lump-sum payment plans. The overseas consolidated subsidiaries provide funded lump-sum payment plans, defined contribution pension plans and defined benefit pension plans. Furthermore, some overseas consolidated subsidiaries revised their retirement benefit plans. Following the change, gain on revision of retirement benefit plan was recorded in the amount of ¥966 million as other income for the fiscal year ended December 31, 2018. The effect of the revision of retirement benefit plans was immaterial for the fiscal year ended December 31, 2019.
Under defined benefit pension plans, the reconciliation of opening and ending balances for projected benefit obligation for the fiscal years ended December 31, 2018 and 2019 was as follows: Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Projected benefit obligation at beginning of year ¥ (37,811) ¥ (1,690) $ (15,364) Service cost (651) (231) (2,100) Interest cost (504) (34) (309) Actuarial differences (138) (4) (36) Benefits paid 152 150 1,364 Decrease from revision of retirement benefit plans 35,940 784 7,127 Other 1,322 58 527 Projected benefit obligation at end of year ¥ (1,690) ¥ (967) $ (8,791)
Under defined benefit pension plans, the reconciliation of opening and ending balances for pension assets for the fiscal years ended December 31, 2018 and 2019 was as follows: Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Pension assets at beginning of year ¥ 35,910 ¥ 24 $ 218 Expected return on pension assets 468 0 0 Actuarial differences 1 1 9 Contributions paid by employer 268 2 19 Decrease from revision of retirement benefit plan (35,391) – – Other (1,232) 0 0 Pension assets at end of year ¥ 24 ¥ 27 $ 246
Integrated Report 2019 75 Under defined benefit pension plans, the reconciliation of ending balances for projected benefit obligations and pension assets and the balances for net defined benefit liability recognized in the consolidated balance sheets for the fiscal years ended December 31, 2018 and 2019 was as follows: Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Projected benefit obligations of funded plans ¥ (616) ¥ (663) $ (6,028) Pension assets 24 27 246 (592) (636) (5,782) Projected benefit obligation of unfunded plans (1,074) (304) (2,763) Net liabilities for severance and retirement benefits recognized in the consolidated balance sheets (1,666) (940) (8,545)
Net defined benefit liability (1,666) (940) (8,545) Net liabilities for severance and retirement benefits recognized in the consolidated balance sheets ¥ (1,666) ¥ (940) $ (8,545)
Under defined benefit pension plans, components of severance and retirement benefit expense for the fiscal years ended December 31, 2018 and 2019 were as follows:
Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Service cost ¥ 651 ¥ 231 $ 2,100 Interest cost 504 34 309 Expected return on pension assets (468) (0) (0) Amortization of actuarial differences 107 3 27 Other – 4 37 Severance and retirement benefit expense for defined benefit pension plans 794 272 2,473 Gain on revision of retirement benefit plan ¥ (966) ¥ – $ –
Under defined benefit pension plans, remeasurements of defined benefit plans for the fiscal years ended December 31, 2018 and 2019 were as follows: Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Actuarial differences ¥ (462) ¥ – $ – Total ¥ (462) ¥ – $ –
Under defined benefit pension plans, the percentage composition by asset class of total plan assets for the fiscal years ended December 31, 2018 and 2019 was as follows:
2018/12 2019/12 Equity securities 51% 45% Bonds 11% 11% Others 38% 44% Total 100% 100%
The current and expected allocation of plan assets as well as the current and expected long-term rates of return for the various assets that constitute the plan assets are considered when determining the long-term expected rate of return on plan assets.
Under defined benefit pension plans, principal actuarial assumptions for the fiscal years ended December 31, 2018 and 2019 were as follows:
2018/12 2019/12 Discount rates (mainly) 1.0 – 3.3% 0.8 – 4.5% Long-term expected rates of return on plan assets 1.0% 1.0% Expected rates of pay raises (mainly) 2.0 – 4.0% 2.0 – 5.0%
The total amounts that the Company and its consolidated subsidiaries needed to contribute to the defined contribution pension plans were ¥1,633 million and ¥1,788 million ($16,255 thousand) for the fiscal years ended December 31, 2018 and 2019, respectively.
76 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
15. Net assets
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common shares. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one half of the price of the new shares as additional paid-in capital, which is included in capital surplus. Under The Japanese Corporate Law (“the Law”), in cases in which a dividend distribution of surplus takes place, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common shares over the total of additional paid-in capital and legal earnings reserve must be set aside as additional paid-in capital or legal earnings reserve. The legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets. Under the Law, both of these appropriations generally require a resolution of the shareholders’ meeting. Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained earnings, which are potentially available for dividends, by a resolution of a shareholders’ meeting. The maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statements of the Company in accordance with Japanese laws and regulations. The Company purchased treasury stock of 2,864,100 shares based on the resolution of the Board of Directors held on July 30, 2018. At the annual shareholders’ meeting held on March 27, 2020, the shareholders approved cash dividends amounting to ¥4,830 million ($43,909 thousand), or ¥50.00 per share. In addition, the Company paid interim cash dividends of ¥4,830 million ($43,909 thousand), or ¥50.00 per share, on August 30, 2019.
16. Assets pledged as collateral and associated liabilities
Assets pledged as collateral and the associated liabilities at December 31, 2018 and 2019 were as follows:
Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Assets pledged as collateral: Time deposits ¥ 306 ¥ 296 $ 2,691 Liabilities associated with assets pledged as collateral: Guarantee of liability 276 259 2,355
17. Contingent liabilities
Contingent liabilities at December 31, 2018 and 2019 were as follows:
Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Guarantees of employees’ housing loans ¥ 142 ¥ 105 $ 955 Guarantees of bank loans for affiliated company accounted for by the equity method 3,038 2,829 25,718
18. Segment information
Information by segment for the fiscal years ended December 31, 2018 and 2019 was as follows:
(a) Segment information (by management approach) Outline of reportable segment The Company has adopted a business division system in which each business division develops a comprehensive strategy for the products it handles and conducts business activities based on such strategy. The Board of Directors periodically reviews decisions regarding the allocation of management resources to each business division and evaluates business performance. Although the Group may be considered to consist of multiple business segments that are handled by various business divisions, in general the “glass products” made by the Group companies are similar in terms of product characteristics, manufacturing methods, market and industry, customer type and marketing factors. Therefore, the Group has consolidated these segments into a single “Glass Business” segment. Accordingly, except for information given in the “Outline of reportable segment,” information for other segments has been omitted.
Integrated Report 2019 77 (b) Related information (1) Information by products and services
2018/12 Millions of yen Glass Business Electronics and Performance Materials Total Sales to external customers Information Technology and Others ¥ 152,226 ¥ 148,101 ¥ 300,327
2019/12 Millions of yen Glass Business Electronics and Performance Materials Total Sales to external customers Information Technology and Others ¥ 134,303 ¥ 122,887 ¥ 257,190
2019/12 Thousands of U.S. dollars Glass Business Electronics and Performance Materials Total Sales to external customers Information Technology and Others $ 1,220,936 $ 1,117,155 $ 2,338,091
(2) Geographical information
Net sales
2018/12 Millions of yen Japan China South Korea U.S. Europe Other areas Total ¥ 49,690 ¥ 72,456 ¥ 53,792 ¥ 45,899 ¥ 41,760 ¥ 36,730 ¥ 300,327
2019/12 Millions of yen Japan China South Korea U.S. Europe Other areas Total ¥ 42,373 ¥ 69,525 ¥ 44,921 ¥ 38,404 ¥ 30,713 ¥ 31,254 ¥ 257,190
2019/12 Thousands of U.S. dollars Japan China South Korea U.S. Europe Other areas Total $ 385,209 $ 632,045 $ 408,373 $ 349,127 $ 279,209 $ 284,128 $ 2,338,091 Notes: 1. The classifications of countries and areas are based on the location of customers. 2. The main country classified as “Other areas” is Taiwan.
Property, plant and equipment
2018/12 Millions of yen Japan China South Korea Malaysia Other areas Total ¥ 189,771 ¥ 64,922 ¥ 46,291 ¥ 40,757 ¥ 44,800 ¥ 386,541
2019/12 Millions of yen Japan China South Korea Malaysia Other areas Total ¥ 190,018 ¥ 56,572 ¥ 43,373 ¥ 38,062 ¥ 30,657 ¥ 358,682
2019/12 Thousands of U.S. dollars Japan China South Korea Malaysia Other areas Total $ 1,727,436 $ 514,291 $ 394,300 $ 346,018 $ 278,700 $ 3,260,745 Notes: 1. The classifications of countries and areas are based on the location of property, plant and equipment. 2. The main countries classified as “Other areas” are countries in U.S. and Europe.
(3) Information by major customers
Sales Millions of yen Thousands of U.S. dollars 2018/12 2019/12 2019/12 Related segment LG Display Co., Ltd. ¥ 42,576 ¥ 37,059 $ 336,900 Glass Business
78 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information
(c) Information on impairment
There was no materiality to the loss on impairment for the fiscal year ended December 31, 2018. Millions of yen 2019/12: Glass Business Total Loss on impairment ¥ 34,775 ¥ 34,775 Thousands of U.S. dollars 2019/12: Glass Business Total Loss on impairment $ 316,136 $ 316,136
(d) Information on amortization of goodwill and unamortized balance
Millions of yen 2018/12 Glass Business Total Amortization of goodwill ¥ 2,205 ¥ 2,205 Balance at end of year 19,073 19,073 Millions of yen 2019/12 Glass Business Total Amortization of goodwill ¥ 2,211 ¥ 2,211 Balance at end of year – – Thousands of U.S. dollars 2019/12 Glass Business Total Amortization of goodwill $ 20,100 $ 20,100 Balance at end of year – – Note: The Company recognized loss on impairment of goodwill of ¥16,586 million ($150,782 thousand) for the fiscal year ended December 31, 2019.
19. Significant subsequent events
Borrowing of Significant Funds
Based on the resolution of the Board of Directors held on March 27, 2020, the Company executed the funding as summarized below.
(1) Purpose for funding Bond redemption and operating capital (2) Lending institutions Sumitomo Mitsui Banking Corporation and 10 other banks (3) Loan amount ¥15,000 million ($136,364 thousand) (4) Interest rate Based on market interest rates and other (5) Date of borrowing March 31, 2020 (6) Repayment due date March 31, 2025 (7) Assets pledged as collateral or guarantee None
Integrated Report 2019 79 Independent Auditor’s Report
80 Integrated Report 2019 Financial & Corporate Value Creation Management Strategy ESG Information Corporate Information
Global Network
Electric Glass Fiber UK, Ltd. (U.K.) Electric Glass Fiber NL, B.V. (the Netherlands) Nippon Electric Glass America, Inc. (U.S.) Nippon Electric Glass Europe GmbH (Germany) Paju Electric Glass Co., Ltd. (South Korea) Techneglas LLC (U.S.) Electric Glass (Korea) Co., Ltd. (South Korea) Nippon Electric Glass (Korea) Co., Ltd. (South Korea) Electric Glass (Nanjing) Co., Ltd. (China) Electric Glass Fiber America, LLC (U.S.) Electric Glass (Shanghai) Co., Ltd. (China) Nippon Electric Glass Co., Ltd. Electric Glass (Xiamen) Co., Ltd. (China) Tokyo Office & Electric Glass (Guangzhou) Co., Ltd. (China) Sales Headquarters Shiga-Takatsuki Plant Nippon Electric Glass Taiwan Co., Ltd. (Taiwan) Notogawa Plant Nippon Electric Glass (Malaysia) Sdn. Bhd. (Malaysia) Precision Glass Center Head OfficeOffice & Otsu Plant Osaka Office & Sales Headquarters
●Manufacturing facilities ●Sales offices
Corporate Profile (as of December 31, 2019) Stock Information (as of December 31, 2019) Founded December 1, 1949 ■ Information about NEG Stock ■ Distribution of Shares by Shareholder Type Total number of shares Individuals 240,000,000 shares Company Name Nippon Electric Glass Co., Ltd. authorized to be issued and others 15.0% Head Office 7-1, Seiran 2-chome, Otsu, Shiga 520-8639, Japan Total number of 99,523,246 shares Financial Tel: +81-77-537-1700 shares issued institutions Fax: +81-77-534-4967 Foreign 35.2% Shares per unit 100 shares investors Sales 10F, Sumitomo Seimei Shin-Osaka Kita 25.5% Total number of Headquarters Bldg., 1-14, Miyahara 4-chome, 15,458 shareholders (Osaka) Yodogawa-ku, Osaka 532-0003, Japan Tel: +81-6-6399-2711 Other Securities corporations firms Fax: +81-6-6399-2731 16.8% 7. 5 % ■ Major Shareholders (Tokyo) 9F, Shinagawa Grand Central Tower, 16-4, Konan 2-chome, Minato-ku, Tokyo 108-0075, Japan Shareholder Number of shares held Shareholding (thousands of shares) ratio (%) Tel: +81-3-5460-2510 Fax: +81-3-5460-2525 NIPRO CORPORATION 12,580 13.0 The Master Trust Bank of Japan, Ltd. (Trust Account) 8,615 8.9 Plants (in Japan) Otsu, Shiga-Takatsuki, Notogawa, Precision Glass Center Japan Trustee Services Bank, Ltd. (Trust Account) 6,047 6.3 Japan Trustee Services Bank, Ltd. (Trust Account No. 9) Capital 32,155 million yen 2,493 2.6 SMBC Nikko Securities Inc. 2,016 2.1 Number of Employees 6,482 (consolidated) THE BANK OF NEW YORK MELLON 140051 1,717 1.8 Stock Exchange Listings Tokyo Stock Exchange (1st Section) Japan Trustee Services Bank, Ltd. (Trust Account No. 5) 1,627 1.7 Stock Code 5214 The Shiga Bank, Ltd. 1,617 1.7 Fiscal Year January 1 to December 31 of each year Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. 1,436 1.5 General Shareholders Held each year in March Meeting Trust & Custody Services Bank, Ltd. (Security Investment Trust Account) 1,343 1.4
Transfer Agent for Sumitomo Mitsui Trust Bank, Ltd. Notes 1. NEG holds 2,904,626 shares of treasury stock but it is not included in the list of major shareholders. Common Stock 2. Shareholding ratio is calculated after deducting treasury stock.
Integrated Report 2019 81 https://www.neg.co.jp/en/ 7-1, Seiran 2-chome, Otsu, Shiga 520-8639, Japan TEL: (81) 77-537-1700 FAX: (81) 77-534-4967
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